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The Ways Heirs May Inherit Debt

12/14/2022 | Heirs & Beneficiaries

California residents may be interested in a recent article that described how a deceased family member’s unpaid bills may have a dramatic effect on inheritance. On most cases these expenses will simply consume a sometimes great portion of the inheritance the heirs are expecting. The most common debts include mortgage or medical debt, unpaid credit cards and unpaid taxes.

Other forms of liability may also affect a living person upon the death of a relative. This can happen most often with co-signed loans. When a signer on a loan dies, many lenders cause the full balance of that loan to immediately become due regardless of the loan’s status or good repayment history.

When a family member has an offshore account, inheriting that money may also be a problem. The IRS is paying special attention to foreign accounts and coming down especially hard on those who have attempted to hide them. All such accounts must be disclosed to the IRS on a Foreign Bank Account Report if they total more than $10,000. The penalty for failing to disclose the account can equal up to half of the account’s value. When a beneficiary learns of an account that was not previously disclosed, they are obligated to report it under the IRS’s offshore voluntary disclosure program. This can result in taxes and fees being assessed.

A beneficiary can be in especially hot water if they are also an executor of the deceased person’s estate. If executors distribute funds before paying all creditors, they may be liable for the full amount owed, even if it is more than the estate’s value. Due to this, an attorney may advise a client to resign as executor if they are also a beneficiary.



Source: Forbes, “Heirs Left With Unpaid Bills May Inherit More Grief Than Gold“, Deborah L. Jacobs, June 18, 2014