When you pass away, you hope to leave your heirs with a positive legacy, both personal and financial. But your best-laid plans could go wrong, especially if economic upheaval or unanticipated and extensive medical bills hit you hard. What should you do if you are worried about saddling your heirs with debt? In Part 1, we covered mortgage and credit card debt; this blog post will address the diverse issues of delinquent taxes, medical loans, student loans and vehicle loans.
Upon a person’s death, the IRS does not hold children liable for any delinquent income or property taxes owed by the parents. However, the estate is responsible to pay these.
Further complications can arise when any type of debt is canceled due to death. Except in rare cases, the IRS views the canceled debt as “income” and holds the recipient – in this case, the estate – responsible for the taxes. A professional can provide tax guidance on how to address this to avoid a huge tax bill.
The repayment of medical debt varies among states. In some cases, the estate will need to pay hospital bills, and the children are not liable. However, more than half of the states have enacted legislation that forces children to pay for parental medical debts when the estate cannot do so.
The government will cancel a federal student loan when the borrower dies. While Parent PLUS loans do not need to be repaid either, private student loans are the exception to this rule. A co-signer possibly signed the loan, and that person will probably be held liable. In addition, the lender could even expect immediate repayment in the event of the borrower’s death.
Upon your death, your heirs could also be held financially responsible for a vehicle loan, especially if you lived in a community property state or if the loan has a co-signer. However, an heir or other individual might buy the vehicle to pay off the loan. You might call the lender to see about taking over payments. Finally, you might decide to surrender the vehicle to the bank, although that lending institution might still pursue the estate for any balance if it does not recover the full price of the vehicle.
Call Our Office for Assistance
We understand that you want to protect your heirs, and we can suggest options for you, so that they will not bear the burden of your debt in the event of your death. For professional assistance, you can reach us at 720-398-6088.