Could Your Children Inherit Your Debt?
When you think about the legacy you plan for your kids, passing on debt probably doesn’t come to mind. Most parents want their children and their grandchildren to be financially secure. And, whether your children are young adults beginning their careers or boomers getting ready to retire, chances are they have their own financial concerns.
Expenses to consider
Secured and unsecured debt — If you’ve purchased a house and have a credit card, you probably carry both types of debt. The main difference between the two is that one is secured by collateral and the other is not. Secured loans are typically used for larger purchases. Mortgages, home equity loans and car loans are secured loans. With unsecured debt, the lender does not offset the loan risk by holding anything of value as collateral. This type of debt can include credit card debt, personal loans and utility bills.
Your children will not be responsible for repayment of these debts, unless they are cosigners on your loans. But, during the probate of your will, any debt remaining is the first thing that’s resolved, and creditors will be repaid by your estate before any proceeds transfer to your heirs. This could mean that any assets you had hoped to pass on to your children could potentially be diminished. To help prevent this from happening, you can purchase sufficient life insurance to cover these expenses. Find out how much life insurance you need.
Final expenses — These are the expenses associated with a funeral, memorial services and burial. Today, the average cost of a traditional funeral in the U.S. is $8,755.5 Add in the cemetery, monument, flowers and grave liner and this figure can increase to as much as $11,600 or more.6 These costs are expected to be paid upfront.
A smart way to make sure your children have the money they’ll need to pay these expenses is with affordable final expense whole life insurance.
Unpaid costs of care — 26 states and Puerto Rico have filial responsibility laws that hold the adult children responsible for a parent’s necessity of life. So, if a parent needs care, and cannot afford to pay for it, the bill from the skilled nursing home facility could become the financial responsibility of their children. While the degree of responsibility varies by state, adult children who are presumed to have enough income to cover the costs are especially at risk for care received before their parent has qualified for Medicaid. These expenses can be significant.7
Filial responsibility laws are in place in the states colored in blue8
Having a plan for care and coverage for chronic or terminal illness can help protect your children from facing these unexpected expenses in the future.
Talk with your financial professional
Discuss the options you have to help protect the financial future of your family — because the legacy you pass to the next generation can be more than just memories.
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2MarketWatch, “All the ways Gen X is financially wrecked,” July 17, 2019.
3Business Insider, “Meet the average American millennial, who has an $8,000 net worth, is delaying life milestones because of student-loan debt, and still relies on parents for money,” December 25, 2019.
4Intuit Turbo,”[Survey] Top Causes of Gen Z’s Financial Stress,” April 16, 2019.
5,6National Funeral Directors Association “2018 Cremation & Burial Report”.
7,8The balance, “How Filial Responsibility is Defined,” October 25, 2019.
Sagicor Life Insurance Company, home office Scottsdale, Arizona issues life insurance and annuities . Products not available in all states and state variations may apply. Products have limitations and restrictions including surrender charges.