Forgiving Debts in Your Will

People often want to leave instructions in their wills that particular debts will be canceled when they die. Their reasoning: It feels good. This type of forgiveness is similar to giving a gift of money. Those who owed the debt will no longer be legally required to repay it.

You can use your WillMaker will to release anyone who owes you a debt from the responsibility of paying it back to your estate after you die. If 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.

If you cancel a debt, you also cancel all interest owed on the principal.

Types of Debts You May Cancel

There are many different kinds of debts you may wish to cancel, including:

• contractual obligations
• unpaid loans, and
• money others owe you because of injuring you or damaging your property.

Caveat: Your Estate Must Be Solvent

You may not be able to forgive debts owed to you if there isn't enough money in your estate to pay your debts. If you think you might die owing more than you have, see a lawyer for advice.

Forgiving Debts Reduces Gifts to Others

Keep in mind that releasing people or institutions from the debts they owe you may diminish the property that your beneficiaries receive under your will.

How Much to Forgive

If you want to forgive the entire debt, enter its original amount. Even if some payments have been made to bring down the total owed, it will be sufficient for will-making purposes if you specify the entire amount of the debt that was originally owed.

If you wish to forgive only part of the debt, indicate the exact amount you want to forgive. For instance, if the debt was originally $10,000 and $4,000 is currently owed, you may wish to forgive $2,000. Enter that amount.

Use Caution If You're Married or Partnered.

If you want to use your will to forgive a debt and the debt was incurred while you were married or legally partnered, you may only have the right to forgive half the debt. There is a special need to be cautious about this possibility in community property states. If your debt is a community property debt, you cannot cancel the whole amount due unless your spouse or partner agrees to allow you to cancel his or her share of the debt—and puts that agreement in writing.

Read more about Property Ownership Rules for Spouses.

Interest

Your document will state that you also forgive any interest accrued on the amount you forgive.

Forgiving Debts in Foreign Currency

The debts you forgive in your will must be in U.S. dollars. You can forgive a debt that you took in a foreign currency, but in your will, list the amount in U.S. dollars.

Entering the Date the Debt Was Incurred

Most debts arise from unpaid loans. If the debt is verified by a promissory note, enter the date the note was signed. If there is no writing memorializing the loan, enter your best guess at when the loan was made.

If the debt arose from a broken contract, enter the date the contract was signed.

If the debt arose from a wrongful act, enter the date the act occurred. If you have obtained a legal judgment proclaiming that some individual is responsible for the injury or damage, enter the date of the judgment.

You Can Leave an Explanation, But Not In Your Will

If you forgive a debt, your will document will contain a brief clause stating your intention. If you wish to explain your reasoning beyond this simple statement, it is best to write your explanation in a brief letter that you attach to the will rather than in the will itself-- like in the Letter to Survivors that comes with your will. A letter is a good, informal way to share the thoughts and reasons behind your decisions.