Understanding debt in estate planning

Understanding debt in estate planning

On Behalf of | Apr 29, 2020 | Estate Planning & Probate |

For North Carolina residents, debt is an important part of estate planning. A person needs to know how the law looks at their debts as well as their assets. Creating the right estate plan with both assets and debts in mind can help a person transfer their assets to their beneficiaries in the best possible manner while minimizing the impact of debt on their affairs.

People often wonder what happens to a person’s debt when they pass and whether they are going to be liable for their relative’s debts. However, a person is not liable for the debts of their parents. Even if a person passes with credit card debts, and if they have more debts than they have assets, a child or other relative is only responsible for the debts in their own name. They are not responsible for the debts that another person leaves even if that person is a relative.

However, when a person passes with debts, the creditors may attempt to collect the debts from the person’s assets. It’s common for a person to pass with both assets and debts. When that happens, the estate may need to satisfy debts using the available assets before transferring assets to the heirs.

Both individuals creating their estate planning and their heirs should be aware that outstanding debts may impact the disposition of a person’s assets. Creating an effective estate plan means creating a plan that takes debts into account as well as assets. Heirs should be mindful that debts may impact the amount of compensation that they receive.

Debts are some of the many factors that impact an effective estate plan. A person can address debts as part of their estate planning with the help of a lawyer. Understanding the laws and rules that apply to estate planning may help ensure that a person’s wishes are honored and that their estate plan is clear and effective.