If given a choice, most people would prefer to see their assets go to their children and other loved ones rather than creditors. In an effort to dodge creditors, or even just the inconvenience of probate, some older people try to transfer property to children during their lifetimes. This well-intentioned act can have disastrous consequences for the surviving family members.
Taxes and debts
Asset transfers have tax consequences. By adding a child’s name to a deed, you can expose him or her to substantial tax debt, as well as to liens and other debts attached to the property. Adding a name to a deed is relatively simple. Understanding the impact of that decision is not. An experienced lawyer is often necessary to ensure the choices you make don’t have unintended consequences.
Aging with debt
The problem is growing more pronounced. More elderly people than ever are carrying credit card debt, still managing mortgages and other ongoing bills. The law generally protects children from debts incurred by their parents. Certain actions, however, can put kids on the hook for these debts. When children co-sign a debt, apply for credit jointly or otherwise participate in the creation of the debt, they can be held accountable.
Smart estate planning
There are assets that can pass directly to beneficiaries without running through a gauntlet of creditors. If you want to avoid having your estate carved up by credit card companies and other debt holders, you need to plan ahead. Those with debt and those without should take the time to create an estate plan that reflects their wishes and protects the ones they love.
Source: AP News, “When your parents die broke,” by Liz Weston, 5 March 2018