If your parents make an estate plan, it is going to distribute the assets that they own. This happens after they pass away when tangible assets – such as cars, homes, businesses and personal possessions – and financial assets get distributed between the beneficiaries.
However, people often pass away with debt, as well. They may have outstanding bills for cable television services, gas and electric services or credit card purchases. They may owe money for property taxes or income taxes. In some cases, these debts are very minor and can be taken care of easily, but they could also be significant. As a child who is inheriting from your parents, are you also responsible for paying off their debts?
The estate pays the debt
You are not responsible for these debts unless you cosigned on a loan or took on the obligation in some other official fashion. But just because your parents have debt doesn’t mean that it moves down to the next generation.
That also doesn’t mean that the debt does not need to get paid. It is intended to be paid out of the estate. This is one of the jobs carried out by the estate executor.
This process can have an impact on how assets are distributed. For example, perhaps there is significant debt that isn’t addressed in the estate plan, so the executor has to pay it off before dividing what remains with the beneficiaries. They could get less than they anticipated.
Or, if money is still owed on the mortgage for the family home and the estate plan leaves that home to the children, they may have to decide if they want to take on the responsibility of paying that remaining mortgage. The home isn’t owned outright, and the lender still wants their money.
This can make the process fairly complicated. Be sure you know about all the legal options you have regarding estate planning, estate administration and the probate process.