In the United States, children don’t technically inherit their parents’ debts, but it’s still possible that post-mortem debts could cause problems for adult children. Let’s take a look at how debts left after your death could cause all types of financial headaches for those you leave behind:
If you want to leave your home to an adult child but it has mortgage debt attached to it, this could make a post-mortem transfer problematic. Unless your child is on the mortgage the lender may attempt to accelerate the loan after your death. Fortunately, your surviving children may have the power to fight any acceleration of the mortgage debt if they’re living in the home when you die. But even if your child is willing to take over the mortgage payment, some lenders may not allow adult children to assume the mortgage without applying for their own financing.
“Lenders may not allow adult children to assume the mortgage without applying for their own financing.”
Credit Card Debt
If you shared a joint credit card account with your child, your death may saddle them with debts that they didn’t accrue. Even if you and your child have an understanding that you would pay the credit card debt, the lender will automatically go after the other borrower on the account (your child) upon your death. Remember, when you’re in a joint account with a spouse or an adult child, your death means that they now have sole responsibility for any unpaid debt.
If you die with unpaid taxes the IRS will have the power to seize assets from your estate to repay the debt. This could mean that your children inherit less or that the assets you intended to pass down to them are encumbered by the tax debt.
“If you die with unpaid taxes the IRS will have the power to seize assets from your estate to repay the debt.”
If you’re drowning in debts and want to secure your adult children’s inheritance, consider a debt repayment plan or bankruptcy to reduce or eliminate your debt load.