Are your parents still going to have outstanding debts when they pass away? It’s an important question to ask because you may be concerned about inheriting that debt. You know that you are going to inherit the assets your parents have in their estate when they pass away. But if they still owe on their home mortgage or credit card bills, will you also have to take on those obligations?
People are often concerned about this because they’re not sure how it will impact their personal financial situation. If your parents leave you unaffordable levels of debt, how are you supposed to handle it? But there’s good news: Debt is not inherited and you likely will not have to pay it off.
So what happens to the debt?
The estate executor is the person in charge of passing the assets in the estate on to the proper beneficiaries. As they do this, they start by taking an inventory of all the assets and the debts that the estate has.
But rather than passing on the debt, the executor uses the funds in the estate to pay off what is still owed. This can help to cover utility bills, property taxes, income taxes and much more. The executor pays the debt from the estate’s funds prior to distributing the assets to the beneficiaries.
In this sense, beneficiaries may lose money that they otherwise would have inherited. But that’s much different than inheriting the debt and having to pay it themselves. If this process does get to be complex, it is quite important to know about all of your legal options with so much money on the line.