Many parents make loans to their children, e.g., to buy or house or to start a business. In your Will, you can leave instructions for forgiving these debts after your death. When you do, your forgiveness functions much the same as giving a gift; those who were indebted to you will no longer be legally required to pay the money they owed. Keep in mind, however, that releasing people from the debts they owe you may diminish the property that your other beneficiaries receive und...er your Will.
Two caveats for forgiving debts in your Will are:
* You may not be able to use your Will to forgive debts if your estate is insolvent. If there isn’t enough money in your estate to pay your own debts, you may not be able to forgive debts owed to you.
* If you made the loan while you were married, you may only have the right to forgive half the debt. Washington and Idaho are both community property states - if the debt is owed to your marital community, you cannot cancel the whole amount due unless your spouse agrees to allow you to cancel his or her share of the debt—and puts that agreement in writing.
When you make your will, carefully describe any debt you wish to cancel, including the name of the person who owes it, the approximate date the debt was incurred, and the amount you wish to forgive. This information is important so that the debt can be properly identified.
Although forgiving a debt is likely to come as a pleasant surprise to those living with the expectation that they must repay it, do not use your Will to explain why you are forgiving the debt. Instead, explain your reasoning in a separate letter that you keep with your Will.
If you have questions about forgiving debts owed by your children (or others) in your Will, or other questions about estate planning or probate, give us a call at 253.858.5434 to see how we can help. We proudly serve clients throughout Washington and Idaho and are available to meet in person, by phone, or via Skype or FaceTime.