For many individuals engaged in estate planning, the primary focus is often on how their assets will be distributed after death. While you may fall into this category, you may also harbor concerns about the fate of the debts you leave behind. Specifically, you may be concerned that your adult children could inherit your debts instead of your assets. To assist you in planning effectively, the Los Angeles attorneys at Schomer Estate & Wealth Advisors help answer the question “Will my kids inherit my debts when I pass away?”
Understanding the Legal Procedures that Follow Your Passing
For your loved ones, the emotional impact of your death will undoubtedly be deep and long-lasting. Your loved ones will also confront various practical and legal tasks, starting with the initiation of the probate process. Probate, the legal procedure required following a death, involves the identification, valuation, and eventual distribution of your estate assets to your beneficiaries and/or heirs. Your appointed Executor, if named in your Last Will and Testament, is responsible for overseeing this process.
During probate, creditors of your estate are notified of the ongoing proceedings and are allowed to file claims against your estate. The payment of debts is a pivotal aspect of probate. If your estate has ample assets to cover all claims, including taxes and expenses, there is no issue. The approved claims are settled, and the remaining assets are distributed according to your Will’s stipulations or pursuant to the California intestate succession laws. If the estate assets fall short of covering all approved claims and expenses, however, a predetermined order of priority under California law dictates the settlement, commencing with administration costs and expenses.
Who Inherits My Unpaid Debts?
If your estate has sufficient assets to pay all claims and debts, there is nothing to worry about; however, what happens if a creditor files a claim, and it is approved, but the estate lacks the assets to pay the claim? Fortunately, in most cases, debts cease to be a concern after your death. If the estate lacks the necessary assets to settle a claim, the creditor is typically out of luck. Assuming that all assets that can be liquidated have been sold, a creditor that is left without payment usually has no legal recourse. In other words, you do not usually need to worry about your children inheriting your debts after you pass away. There are, however, situations that could arise where your child could be responsible for your debts. For example, if your adult child co-signed for a loan, lease, or credit card jointly with you, the creditor retains the legal right to pursue the co-borrower or co-debtor, making them fully responsible for the entire debt, even after your passing.
Nursing Home Debts Can Be an Exception to the General Rule
An exception to the general rule occurs with nursing home or long-term care debts. Some states permit holding an adult child accountable for a deceased parent’s nursing home bill. Although certain states have laws allowing a nursing home to pursue the adult child for the parent’s debts, such laws are often overlooked. It is also important to understand that relying on Medicaid for long-term care expenses might lead to the Medicaid Estate Recovery Program (MERP) filing a claim against your estate after you pass away. The purpose of MERP is to allow Medicaid to recoup the benefits provided during your lifetime. While this does not directly impose responsibility for your debts on your children, it may result in a significant reduction of assets left over at the end of probate, meaning your children will inherit less from your estate.
Do You Have Questions about Who Will Inherit Your Debts?
For more information, please join us for an upcoming FREE seminar. If you have additional questions about who will inherit your debts after you pass away, contact the experienced Los Angeles estate planning attorneys at Schomer Estate & Wealth Advisors by calling (310) 337-7696 to schedule an appointment.
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