This reporter is relying a little too much on financial-industry sources. Dying with debt isn’t a dirty little secret, it’s a financial strategy that’s been well known for 20 years or more.
And while many retirees who are being quietly buried under a mound of debt may think they’re protecting their kids by not burdening them with their financial problems, if they don’t pay off their debts before they die, it will eventually become their children’s burden.
Whatever that parent owes will be deducted from his or her estate before that estate is divided among the children and other beneficiaries.
This statement makes the enormous assumption that there’s an estate to divide, and that the parent hasn’t had the good sense to distribute their assets among their kids well before their death. Because the real dirty little secret is that unsecured debts of a dead person may be the responsibility of the estate, but they’re not the responsibility of anyone else. (Even though you will read stories of finance companies and debt collectors harassing children and cousins, telling them they have a moral responsibility to pay off what their dead familiy members used to owe.)
So if a parent dies with their house mortgaged and underwater, having given away the family bric-a-brac, tapped out the checking account and put their last 50 grand of expenses on their credit card, there isn’t a damn thing creditors can legally do to their kids. No burden at all. And that’s the outcome the people who pitched this article to the reporter are desperately trying to avoid.
Of course you have to get the timing right.
Perversely, once you recognize the probability that you’re going to leave a negligible or negative estate to your kids, there’s a strong incentive to make that negative number as large as possible, because the outcome will be the same for your heirs regardless.