Do kids inherit parents IRS debt?

A Child is Not Personally Responsible for a Parent's Debt—Unless They Co-Signed. As a starting point, it is important to understand that children are not legally responsible for the debts of their parents unless they themselves have co-signed the loan.

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Many American families are worried about finances. According to a survey conducted by the American Psychological Association (APA), money—and more specifically, debt—is the leading cause of stress in the United States. This raises an important question for parents who are putting together their estate plan: Will my children inherit my debt?

The answer is almost always ‘no’, at least not directly. Children are not liable for their parents’ debts. That being said, creditors can and will go after your estate. In this article, our San Antonio estate planning lawyers provide an overview of the key things that you should know about parents, children, and inheriting debt in Texas.

A Child is Not Personally Responsible for a Parent’s Debt—Unless They Co-Signed

As a starting point, it is important to understand that children are not legally responsible for the debts of their parents unless they themselves have co-signed the loan. For example, if a parent passes away with $50,000 personal credit card debt, their child—whether they are a minor or an adult—will not be personally liable for that debt. Of course, debt responsibility laws apply to more than children. People are generally not liable for the financial debts of other parties, including their loved ones and relatives. Though, as Texas is a community property state, a spouse may potentially bear some responsibility for certain debts incurred by their partner. Unfortunately, in some cases, unscrupulous companies and debt collectors provide misleading information and may even attempt to pressure a child into paying off their parent’s debt. Make sure you know your rights. If you currently find yourself dealing with this type of situation where you believe a debt collection company is trying to collect a debt owed by a deceased person, it is recommended that you speak to a consumer protection professional.

Creditors Will Seek Repayment of Debt Against an Estate

While children are not responsible for repaying the debt of their parents, creditors do have a right to recoup payment through the estate of the deceased person. In practice, this means that creditors are likely to file a claim against a decedent’s assets. In other words, a child could lose some or all of their inheritance to collectors. As was mentioned previously, a child cannot be held directly liable for their deceased parent’s $50,000 in credit card debt. If the parent passes away with substantial credit card debt and no remaining assets, then the debt will likely be wiped out. The credit card company or other lender will probably be forced to write off the debt as a loss. However, if a parent passes away with significant amount of debt and they also have left an inheritance for their children, things will be far more complicated. Indeed, if a parent dies with $50,000 in credit card debt and $25,000 in a checking account, that potential inheritance can be claimed by the creditor. While a child is not personally liable for the debt, the estate—through which the child may be entitled to receive inheritance—must settle all debts and creditor claims before any financial distributions can be made.

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How Estate Planning Can Help Parents Protect Their Children’s Inheritance

Debt and estate planning is a complicated issue. The most important thing that families need to know is that a parent’s debt is not the legal responsibility of their children. However, it is the responsibility of the estate. A creditor—including the Internal Revenue Service (IRS) and the Texas Comptroller’s Office—can try to make a claim on an estate, taking funds that would otherwise be distributed as a child’s inheritance. If you are a Texas parent who has debt and who wants to leave an inheritance for your children, you should consult with an experienced Texas estate planning lawyer. The best estate plan is a proactive estate plan, especially when dealing with debt. Your lawyer will be able to help utilize estate planning tools, such as a living trust, to help you protect your assets from creditors to the greatest extent possible.

Get Help From Our San Antonio, TX Estate Planning Attorneys Today

At Weisinger Law Firm, PLLC, our Texas estate planning and powers of attorney lawyers are committed to providing attentive, personalized legal guidance to clients. If you have any questions or concerns about inheritance and debt, we are available to help. To arrange a strictly private case evaluation, please contact us today. We offer estate planning services throughout the region, including in San Antonio, New Braunfels, San Marcos, Seguin, Selma, and Universal City.

weisingerlawfirm.com - Can a Child Inherit Their Parents' Debt When They Die?

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