Do estate debts always have to be paid?
Topics covered:
- Explaining circumstances where estate debts can remain unpaid because assets have passed to beneficiaries outside the estate
- Explaining that a named executor has no legal obligation to administer an estate
- Suggesting that action be taken while alive to eliminate or greatly reduce debt in consultation with a debt consolidation expert
Will my children be burdened by my debts after I’ve passed away?
Some parents (crazy buggers) have a goal of leaving a sizeable estate to their children.
Not me!
I won’t shed a tear if there’s some gas in the tank when I’m laying on my death bed. But ideally, I will not only have drained the tank dry, but will also have charged my credit cards to the max with a last hurrah of a worldwide cruise.
I love my kids dearly, but what good comes from living your life with the expectation that you get a bunch of money when your old man kicks off?
My executor, one of my kids, will check my mail and see overdue notices from my credit card companies.
If they’ve read this column, they’ll know not to pay them.
Being named executor imposes nothing of a legal obligation to look after an estate. You can leave it be.
If debts equal or exceed assets, you’re just helping out the credit card companies if you take on that executor role.
Let’s change the scenario a bit. Same racked up credit cards, but I’ve got $100,000.00 in a Tax Free Savings Account (TFSA). And I’ve named my children as beneficiaries of that registered investment.
TFSA funds with named beneficiaries won’t form part of my estate. They will be paid by the financial institution directly to my children.
No need for my kids to worry about the credit card debts in that scenario either. They can collect the proceeds of the TFSA and ignore those debts.
Let’s push this scenario further.
In addition to the $100,000.00 in a TFSA, I’ve got a $650,000.00 condo. But it’s not solely in my name. For estate planning purposes, intending to give my children the “right of survivorship”, I’ve added my children to title as joint tenants.
My children will simply file my death certificate with Land Titles and the condo will be theirs.
Those credit card debts don’t have to be paid in that scenario either.
There are a couple of important bits about those joint title transfers, though.
There must be evidence of my intention that my children receive the condo through their right of survivorship. If not, then even though they would become registered owners, they would hold the condo on behalf of my estate.
That must sound confusing as all hell.
The law presumes that if you transfer your asset to others as joint tenants, without receiving anything in return, that you intend for them to hold that asset on behalf of your estate after you die. If you want them to receive the gift of the right of survivorship, there must be evidence of that intention.
The other matter of importance is that I didn’t do the joint tenant transfers for the purpose of avoiding creditors. My children not having to pay the credit card debts can be the happy result, but it cannot have been my purpose.
The law says that if property is transferred for the purpose of avoiding creditors, the transfer is void and can be reversed.
Is anyone feeling bad for credit card companies?
They’re the most sophisticated lenders out there. They throw credit at us with full knowledge of the rules.
How about we discuss a much more likely scenario.
It is easy to fall into debt. Incredibly high interest charges make it very difficult to climb out of that hole.
You might own a home, but your income level or equity might be insufficient to refinance to get the funds to deal with the debt.
Or you might be saddled with a huge debt to ICBC or another creditor and be making monthly payments that will never actually pay it off.
If you’re in that difficult scenario, whether you’re a pensioner or a young person, I recommend that you consult with someone about ways to eliminate or drastically reduce that debt. Reach out to me if you need the name of a debt consolidation consultant.
As a young person, you will remove a huge stress from your life. If you are nearer the end of your life, you will not only remove that stress, but you will strip away debt that will allow for more of your assets to go to your beneficiaries.
Most of my columns, including this one, contain complex legal information. I do my best to share that information in a way that will be understandable. However straightforward it seems, though, please consult with a lawyer so that you can be advised about how these legal issues apply to your own circumstances.
