One concern that people have when considering estate administration and their potential inheritance is that their parents may have a high level of debt. Parents may have mortgage loans, car loans, credit card debt and much more. This debt may be substantially higher than that held by their adult children in the next generation.
If you are in this position, your worry may be that you are going to inherit your parents’ financial obligations. While you know that you are going to inherit financial assets, tangible assets and other possessions, do you also have to take on this new level of debt?
The estate pays the debt first
The good news is that you do not inherit debt. Instead, the estate pays the debt down during probate. This is one of the tasks carried out by the estate executor. They use funds from the estate to pay off these obligations, and the debt is not inherited by the next generation unless they were cosigned on a loan or already shared the debt in some other way.
But if you are entirely disconnected from your parents’ debt, you are not going to take it on. You will not suddenly owe $50,000 on a credit card that was in your parents’ name. The only financial impact it would really have on you is that some of the funds from the estate must be used to pay this debt, which may reduce what you inherit.
Financial details can be a complex part of probate. It is important for those involved to understand all of the options they have.
