If your parents have a significant amount of assets, you likely expect to inherit them. Maybe you think they’re going to give you the family home. Perhaps you believe they’re going to leave you significant financial assets, such as $1 million in an investment account.
But most people own both assets and debts. When your parents pass away, do you also inherit these financial obligations and liabilities?
The estate pays down the debt
This can only happen in rare situations, such as when a child co-signed on a loan with their parent. If the parent passes away, the child is still responsible as a co-signer.
But in most cases, debt is not inherited. Just because your parents ran up $20,000 of debt on their credit cards doesn’t mean that you are suddenly going to be responsible for paying it off.
However, the credit card company in this hypothetical scenario would still want to be paid back. This is something that the estate executor handles. They have access to funds from the estate, so they can pay down the debts and then distribute all of the assets that remain in accordance with the estate plan.
In some cases, this could mean that money from the estate has to be used to pay the debt, so you inherit fewer financial assets than you would have otherwise. But you don’t have to worry about inheriting financial obligations directly.
The probate process
Going through probate can certainly be complex, especially when handling significant financial assets. Those involved need to know exactly what legal steps to take.