Are you going to inherit your parents’ debt?

On Behalf of | Apr 29, 2024 | Estate Administration

Your parents may have a significant amount of debt. This doesn’t affect you personally right now, as you have moved out of the house and you have your own expenses to handle. You know that your parents budget differently than you and they’re comfortable taking on more debt than you think is reasonable.

But your concern is that your parents are growing older. Perhaps you’ve been talking with them about estate planning. You know that you are going to inherit some of their assets, along with other beneficiaries. But as a direct descendent, are you also going to inherit their debt?

The estate should pay off the debts

As a general rule, the answer is no, that children do not inherit their parents’ debts. You typically won’t have to worry about this except in a rare scenario, such as if you cosigned on a loan with your parents. If so, even if they were making 100% of the payments before, you would still be liable for the remaining debt.

Instead, what happens to debt is that the estate itself pays the debt off when someone passes away. 

For instance, the estate executor may be authorized to split up $500,000 between the beneficiaries. But if the parents still owe $200,000 on their mortgage, credit cards and more, the executor may use that money to pay off the remaining balances and then split up the $300,000 that are left. So you and the other beneficiaries may get less money than you anticipated, but you won’t personally take on that debt or have to worry about bankruptcy and other complications. 

For all debt and estate planning issues, it’s quite important to understand exactly what legal steps to take.