An estate plan usually deals with distributing assets between heirs. Bank accounts will be divided, investments will be cashed out, family homes will be sold and the money will be split.
However, people often pass away with some amount of debt, as well. An example of this could be if they still have a home mortgage or if they have debt remaining on their credit card. Other forms of debt include property taxes or income taxes that may still be owed. This is especially true in the case of an unexpected passing, when no plans may have been made to handle this debt.
In a situation like this, does the debt pass down to the next generation along with the assets? Will the heirs have to pay it off?
It is a responsibility to the estate
Those who are worried about having to pay their parents’ debt should not be. Unless they cosigned on a loan, they are not going to be liable for debt incurred by someone else. It does not pass on along with the other assets.
That being said, outstanding debt does need to be paid, and that will be done by the estate. This is a job for the estate administrator. Therefore, it is possible that the heirs will feel like they are losing money because the debts are being repaid before they get their inheritance. But they don’t personally have to make those payments.
Working through the financial process
The probate process can be complicated, especially when significant assets are involved. Be sure you know exactly what legal options you have as you work your way through it.