Do my debts pass on to my kids after death?

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As Benjamin Franklin once noted, death and taxes are two certainties in life. That’s one reason to keep your financial affairs in order. However, debt is what fuels American consumers, and you may have accumulated quite a bit of it. You could then be wondering if your debts will pass on to your kids after you die.

It depends on the type of debt

In general, if your child co-signed a loan that you took out, they will be responsible for that debt after you die.

When you die, your assets will go into an estate, and that estate will pay out creditors based on a hierarchy that determines who gets paid first. For instance, estate taxes, income and property taxes are higher up in the line of payment. If the estate is solvent, all the creditors will get paid and whatever is left over will go to your kids.

In the event that your estate owes more money to creditors than it has available, some creditors will be left unpaid. In that case, your children typically won’t be saddled with the debt, but they won’t have a payday from the estate either. For instance, if you have credit card debt that your child did not co-sign for, the creditor will have to write off the debt in case your estate is insolvent.

And if the debt is secured, such as a car loan or a home loan, the creditor will be able to repossess the property, and your children are not liable for the debt. If the children want to own the home, they could refinance the loan and pay off the creditor.

Medical debt could be expensive

With the cost of healthcare as high as it is in the U.S., you may be wondering if your children would have to take on the responsibility for any medical debt or nursing home costs you incur. This depends on the state you live in. In case your estate cannot pay those bills, there are certain states that have “filial responsibility” laws that could make your children responsible for those debts, depending on the circumstances.

In Pennsylvania, for instance, the state’s filial responsibility law could make your child responsible for medical debts that your estate can’t settle in case your spouse is dead or incapable of taking on the task.

Debt collectors have to follow certain rules

Debt collectors have an incentive to collect on any debt you owe and could decide to pursue them with your children. However, the Fair Debt Collection Practices Act protects your children from harassment by debt collectors. The law prevents them from being unfair or deceptive or hounding your children about the debt.

The Federal Trade Commission came out with guidelines in 2011 for how debt collectors could engage with relatives of deceased people.

The FTC advises, “Under the FDCPA, collectors can contact and discuss the deceased person’s debts with that person’s spouse, parent(s) (if the deceased was a minor child), guardian, executor or administrator. Also, the FTC permits collectors to contact any other person authorized to pay debts with assets from the deceased person’s estate. Debt collectors may not discuss the debts of deceased persons with anyone else.”

Bottom line

In general, your debts won’t cast a shadow on your children from your grave. The one exception that they will certainly be liable for is any loans they co-signed with you.

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