When Nevada residents — and individuals across the country — think of heirs, they likely think first of those who will inherit assets from family members. In some cases, assets aren’t the only thing made part of an estate. When individuals who pass away owe money, the debts are also part of the estate. Solid estate planning helps to protect heirs from debts and creditors.
One thing that’s important to understand about most debts is that they aren’t directly inherited by a person or persons. Instead, the debt is a matter for the estate. Someone who administrates the estate takes assets and pays off debts prior to dividing what is left among heirs. That person is known as the executor.
Individuals can appoint an executor they trust via a will. In the absence of a will, the state or court may appoint an executor to handle estate administration.
The liability for some debts does fall on heirs. This is true in community property states, where a spouse may take on debt after his or her partner passes away. It’s also true if someone cosigns for a debt or guarantees a debt. If an executor of an estate fails to fulfill lawful obligations to creditors, that person can also be held personally liable for debt in some cases.
There are some legal ways individuals can shield money from both creditors and taxes. Creating certain types of trusts lets individuals pass money onto heirs before the individuals pass away. Trusts allow rules to be put in place for disbursing and using the money, but they also protect funds from some forms of creditors. Whether you’re creating a will or setting up a trust, it’s important to understand your personal financial situation in order to make decisions that will best protect your estate in the future.
Source: The Motley Fool, “What Happens to Credit Card Debt When Someone Dies” Peter Andrew, Jul. 19, 2014