Parents sometimes pass away with debt. In fact, most people will pass away with final bills that have to be paid, such as utilities, property taxes, income taxes or credit card bills. It’s not always possible to plan ahead for these types of things, so they have to be taken care of after the fact.
On top of that, some people may still have substantial debt in their name. Maybe someone passes away when they still have 20 years left on their home mortgage, for instance. Perhaps they recently took out a small business loan. Maybe they have a car loan or are still paying off other substantial assets.
The adult children will likely inherit their parents’ assets when they pass away, but they may also be worried about inheriting the debt. Will they have to pay?
How debt is handled through the estate
Adult children don’t have to worry about inheriting their parents’ debt or being obligated to make those payments on their own. Instead, this is handled through the estate, as the estate executor uses the funds in the deceased person’s estate to cover their debts. After paying off these debts, they distribute the remaining assets in accordance with the estate plan.
While this does mean that an adult child wouldn’t have to write a check to cover their parents’ debt, it can mean they inherit less money than expected. If a parent has substantial debt, the executor may need to use a large portion of the estate to pay off creditors before the executor can pass those assets on to the beneficiaries.
Estate issues like this can certainly get complex. All involved must be aware of their legal options.