From: Mike Lorrey (mlorrey@datamann.com)
Date: Mon May 27 2002 - 10:06:07 MDT
Louis Newstrom wrote:
>
> From: "Dossy" <dossy@panoptic.com>
> >
> > Maybe I'm mistaken, but in the US, if parents rack up debt and
> > pass away (with insufficient life insurance to cover their debts)
> > the kids (if any exist) are left paying the debts, no?
>
> I think this misconception comes from inheritance laws. What often happens
> is that the parents owe money on a house. The kids "inherit" the house.
> They actually have the right to walk away and say "That's not MY debt." But
> most don't.
>
> They are so used of calling it "my parent's house" that they forget that it
> is NOT their parent's house until the mortgage is paid off. It still
> belongs to the bank. So what is really happenning is that the kids agree to
> take over the mortage. They continue the payments, and at the end of the
> loan, they get the house.
I wonder, though. If that is the only debt, then I suppose it's
accurate, but probate court wants to make sure all creditors are paid
before the family gets anything PLUS the family pays the inheritance
taxes, INCLUDING the taxes on monies paid to creditors, since
inheritance tax isn't actually a tax on those who inherit, but on those
who leave money to be inherited. In this way, you could be nailed.
A proper way to protect your assets (and your parents assets) is to use
living trusts instead of wills. A living trust says "I get to use this
thing until I die, at which time it can then be used by X" but remains
the property of the trust at all times and the inheritor doesn't pay any
taxes, nor can creditors get their mits on it (unless there are
pre-existing liens that are paid through the trust under its own trustee
arrangements). Living trusts are also immune to probate court oversight
(and the long delays that entails) and are a great way to easily pass
property along as you wish, unencumbered.
One reason lenders like people to consolidate their debts into home
equity loans, or loans secured by home equity is so that their debts are
all protected by liens on the equity in the home, and these debts have
to be paid before the home can be inherited if the present owners pass
away.
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