While making your estate plan, you are certainly taking the time to make financial decisions. What will happen to your savings? What about your investments? What if you have a life insurance policy? What do you do with real estate or other major assets that you own? Estate planning is the process of passing these on to beneficiaries – often including your own children or grandchildren.
On the other side of the coin, though, you may wonder what is going to happen to your debt. You can pay some of it off, such as paying off a mortgage so that your children don’t have to take over that mortgage if they want to keep your house. But there are other types of debt that you probably won’t pay off before you pass away. For instance, you may owe property taxes or income taxes for the last year of your life, or you may have a small amount of debt on some of your credit cards.
Is the debt forgiven?
No, the debt is not automatically forgiven just because you passed away. Much of it still does need to be paid. The government will want their tax money, and the credit card company will want to have the loan repaid.
What usually happens is that the person you choose as your estate executor takes the funds from your estate and pays down your debts first. Only after doing this can they distribute the remaining assets to your beneficiaries.
This is why planning for debt is important, because you can maximize the amount of money that actually goes to the next generation. Take the time to carefully consider all of the legal options you have while creating this plan.