When you are creating or updating your Oregon will, you might wonder if you can forgive debts in your Oregon will. Your estate plan can include provisions about forgiving, or canceling, debts owed to you. Forgiving debts in your will is a powerful tool. But like any powerful tool, it must be used with care.
When it comes to canceling debts via your Oregon will, here are things to keep in mind—and to discuss with your Oregon estate planning attorney.
What kinds of debts can you forgive or cancel in your Oregon will?
There are typically three overall types of debt you can cancel via your will:
- Money owed to you by someone else due to damage to your property or personal injury to yourself
- Money you loaned to someone that has not yet been paid back
- Debt created under a contract between you and another party
If these types of debts have not been settled by the time you pass away, then your will can essentially cancel that debt, including both principal and interest.
Tip: If the terms of the debt are also in a written document such as a mortgage or promissory note, you may also want to update that document accordingly. Otherwise, the debt might not be forgiven, because the terms of the note may supersede the terms of your will.
If your Oregon estate owes money, those debts must be repaid first.
Before any property and assets can be passed to your heirs, your estate will have to cover costs, such as funeral, probate, and unpaid debts.
Debt forgiveness via your will requires that your estate also settle debts you owed. If your Oregon estate owes money, you may not be able to forgive debts in your will. The estate has to be able to generate as much revenue as possible to satisfy any claims from creditors.
It’s important to remember, though, that while property and assets can be transferred to others via your will, debts do not pass on. While your estate must try to settle as much of its debts as possible, any unpaid amounts will be considered uncollectible. Your heirs will not be liable for those debts.
Canceling debts owed may lower the value of your estate, which mean less property received by your estate’s beneficiaries.
While canceling debts in your Oregon will can be a kind thing to do, it can lower your estate’s value. In turn, that can mean that yours heirs receive less than you might have preferred or intended.
That doesn’t have to be a dealbreaker for debt forgiveness in your will. It is something to keep in mind though. Are your heirs better off if you will forgives a debt, or if the debt is collected?
Canceling debt in your will can impact Medicaid benefits
Long-term care, especially when paid via Medicaid, can influence whether or not you cancel debts in your will. Forgiving debts in your will can affect Medicaid eligibility. Medicaid may also consider the forgiven amount of debt like cash in-hand, and reduce benefits accordingly.
How much debt can you forgive in your Oregon will?
You can specify the forgiveness of an entire debt in your will. Or you can specify a partial amount be forgiven. In any case, record the original amount of the debt in your will. Also specify the amount of the debt that is to be forgiven.
Oregon law may limit how much debt you may forgive in your estate plan
However, Oregon law may limit how much of the debt is forgivable. For example, if you were married at the time the debt was incurred, you may only be able to forgive half of the debt. In order to forgive a larger amount, the spouse or other entitled party would have to provide their written authorization accordingly.
Tips to forgive debts in your will
Here area few other things to keep in mind when considering including debt cancellation in your Oregon will:
- When you cancel a debt in your will, that forgiveness includes both principal and interest owed.
- Is the debt is in a foreign currency? The amount must be listed in your will not only in the foreign currency amount, but the US dollar equivalent.
- When addressing the debt, your will needs to include: the original amount, the forgiven amount, and the date the debt began. (That date could be the date a note was signed, a contract broken, or the date of injury.)
Include explanations in a separate letter, not your official Oregon will
It’s understandable that you may want to explain debt forgiveness or provide some context. However, leave those details out of your will.
Your Oregon will is best used as a straightforward document. It can address what is to happen with the assets in your estate. Anything else, such as why you are forgiving a debt, is best explained in a separate letter.
Is debt forgiveness or cancellation right for your Oregon will and estate plan?
Canceling debt via your will is a powerful tool in your estate planning arsenal. It can be a sign of forgiveness, or a way to give someone a clean slate. It can also represent an opportunity to make things easier for someone.
However, canceling debts in a will isn’t always the right decision. Or sometimes you may need to be nuanced in how you forgive debts through your estate plan.
Forgiving or canceling debts in your will? You’ll want an experienced Oregon estate planning attorney in your corner. Working with your estate attorney can make a big difference in the value of your estate. That can mean all the difference for those who survive you, while you cancel debts in your will or not.