Financial assets are often inherited by family members when a person passes away. If that person has an estate plan, then it should give directions for how these assets should be distributed. Even if they do not, state law can dictate which direct relatives are supposed to inherit, such as a surviving spouse or adult children.
One concern that people often have, however, centers around debt and outstanding financial obligations. A person may pass away while still owing money on their mortgage, owing taxes to the government or having failed to pay back lines of credit or credit card bills. Assets are going to be inherited by the next generation, so does the same thing apply to these debts?
The estate is responsible for outstanding debt
Typically, this is not an issue for family members. They are not going to inherit someone else’s debt. An adult child is not responsible for paying off a parent’s credit card, for example.
Instead, the estate itself is responsible. This means it is an obligation that falls on the estate executor, who has to pay debts and taxes while settling that person’s affairs.
This can sometimes impact an inheritance. Creditors may need to be paid first, and tax debts may need to be satisfied. This can reduce the value of a person’s estate so that family members do not inherit as much as they would have otherwise.
Navigating the probate process
Handling debts and assets is a key part of the probate process, and it can get complex. Since it is so critical for those involved to understand their rights and obligations, it may be helpful to work with an experienced attorney.