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An equity line of credit could mean rethinking your estate plan

If you take out a second mortgage or a home equity line of credit, be aware that it could affect your estate plan.

The reason: Many people plan to leave their house to one child, and the rest of their property to their other children (or other heirs). But their will doesn’t say specifically whether the child who inherits the house will receive it subject to any debts, or whether the debts must be paid off by the other children. This can lead to some hard feelings between the children.

In the past, unless the will was clear, the assumption was that the other heirs had to pay off any mortgage or home equity line of credit. But recently, many states have changed their laws, and now say that the child who inherits the house also inherits the debt.

In a case decided just this year, a Florida father left a sugar cane farm to one of his sons, and the rest of his property to another son. At the time the father died, he owed $241,000 in loans on the farm. The executor paid off this debt out of the second son’s inheritance.

The second son objected and went to court. A judge agreed with the executor, but the Florida Court of Appeals later threw out that ruling and said the first son, not the second, had to pay off the loan. In any event, it’s wise to consider the effect of a mortgage or line of credit on your estate plan, and make sure your will specifies exactly how you want your property to be divided.

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