So, who pays your debts when you’re gone? Your wife? Your kids? What happens when someone dies, leaving debts and not enough money to pay them?
The Good News
Here’s the good news: No one else is required to pay your debts, as long as they are not on the debt, too. Your wife, your kids, your executor, your power of attorney – none of those people are required to pay off your debts with their money. What they are required to do is use your money to pay your debts. But if your money runs out, then the creditors are just plain out of luck.
The Vital News
Even though your debts die with you, they can still haunt your family and the assets you leave behind. Maybe you’re thinking – I pay my bills on time, why should I worry about debts after I die? Let me give you a few examples about how obligations you leave behind could haunt those you care about most. Let’s think about the various kinds of “debt” – not just overdue bills, but any obligation that may be left unpaid at your death.
Your house. Suppose you have a house with a mortgage. When you’re gone, the mortgage must be paid or refinanced. Will your spouse be able to stay in the house?
Your business. Without planning, your business may be at risk. Does the business depend on a loan or credit line based on you? Without you, will the business be able to access needed bank credit?
Your partners. If you’re in business with a partner, how will your share be bought out at your death? Maybe a lot of your wealth is in the business, but, without a plan, how will your family get the money?
The family farm. Do you have a child who farms and other children who don’t? What is your “debt” to each of the kids? Without a plan, the farmer son may be left without a way to make a living.
College. How strong is your desire to help your kids (or grandkids) get an education? Does it rise to the moral obligation of a “debt”? When you’re gone, how does your plan make sure the funds are there when the kids are ready to go to college?
Uncle Sam. In 2011, estate taxes are coming back with a vengeance. Without a plan, your family may need a fire sale of assets to pay off the IRS bill. Do you know how much your estate may owe in estate taxes?
You may not leave behind unpaid credit card bills or overdue bank loans, but you may leave other obligations. You must have a plan in place with enough funds at the right time to take care of them. Without a plan, your family will be left paying – in legal fees, time, stress, frustration, and strained relationships. A plan to address these issues is more than getting the right kind of legal document. Addressing these issues and others will require you to integrate your legal and financial plan. We help clients do this every day at Edwards Group. Let us help you, too. RSVP today for one of our upcoming workshops to find out where your family is at risk, and how to have true peace of mind.