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Understanding how debt works when working with estate planning

On Behalf of | Feb 14, 2022 | Estate Planning |

One of the primary goals of an estate plan for Oregon residents is bypassing the probate process as much as possible. Probate essentially exposes certain personal assets to creditors and tax assessors following the passing of a primary asset holder, and many times changes can be made with personal financial assets prior to the fact by establishing trusts or going ahead and transferring property to the eventual inheritor beforehand. However, some debts will still require settling in many instances.

When someone must repay a debt

There are situations when certain individuals will still be required to pay some debts. One circumstance is when the decedent and another party have borrowed money together and have both signed the loan agreement. The remaining party is still liable for the debt even when it is not included in any estate planning documentation. Additionally, in states like Oregon, spouses are often required to pay debts assumed after the passing of the other spouse, and executors of estates who fail to follow state law can also be sued for debt payment.

When survivors do not have to pay debt

There are also probate cases where the estate is declared insolvent and what assets are left to distribute are confiscated for payment to creditors and tax agency obligations. Children of deceased parents are not required to pay the parent’s debts for the most part unless they are co-signed on an obligation. Tax obligations accrued through inheritance are not estate settlement issues either, but rather are tax issues for the inheritor of the assets on their particular tax return for the following year.

Additionally, hospitals, nursing facilities, and doctors are often limited in how much they can collect as well in a probate process. But, one problem may be an attachment to a home that has not already been placed in trust or not already assigned for inheritance by another party.