Ancient Egyptians used to bury a dead pharaoh with mounds of gold and jewels for the afterlife. Centuries later, the treasures were still sitting there unused. A few things have changed since then, but we still can’t take our wealth with us. Nor can we pack up our liabilities and tote them along.
A recent article in Forbes addressed this sometimes ignored facet of estate planning. When a person dies, they can in many cases leave behind liabilities such as tax debts, loan guarantees, commercial commitments, medical bills, credit card debt and other financial obligations that give heirs the gift of headaches.
Sometimes the deceased has done something nice for someone, such as co-signing a student loan. But when the co-signer dies, it’s in some cases possible for the loan to be immediately declared in default, or the lender can call for the entire balance to be paid.
Another scenario: a person with foreign bank accounts dies, leaving inheritors those assets. But if the inheritor doesn’t file a Foreign Bank Account Report, the IRS can come down hard. Failure to file the report can mean up to half the account’s value can be taken in penalty.
If a person inherits a secret foreign account and immediately tells the IRS about the existence of the funds, they can owe eight years of back taxes, plus interest and penalties (including penalties of up to 27.5 percent of the account’s value for the decedent’s failure to file the Foreign Bank Account Report).
These are just a few of the many issues that can live on for heirs; issues that can be addressed now with your estate planning attorney.
Source: Forbes, “Heirs Left With Unpaid Bills May Inherit More Grief Than Gold,” Deborah L. Jacobs, June 18, 2014