You often hear people say that debts are not inherited, and this is true. When a person passes away, their children are not going to inherit that debt. Unless the child was already connected to the debt, such as a co-signer on a loan, they do not suddenly take on that obligation just because their parent passed away.
However, this leads some people to the mistaken assumption that debts are simply erased when someone dies. This is not the case, either. That debt does still exist and generally needs to be paid back. So who is responsible for doing it?
The person’s estate
The responsibility still lies with the deceased for the debt that they took on. Their estate has to settle accounts with creditors. This is often handled by the estate administrator.
For example, say that someone passed away with $100,000 in financial assets, but $20,000 in credit card bills. Creditors would file a claim against the estate, which would pay off the debts and settle those accounts. This would leave $80,000 remaining, which would be passed on to the beneficiaries in accordance with that individual’s estate plan.
In this way, debt can have an effect on what someone inherits. It is not that they are inheriting that debt themselves, but simply that the debt needs to be paid down during the probate process, so they may inherit less than they would have otherwise.
Navigating probate
Addressing creditor claims is just one aspect of probate. Those going through this process need to know exactly what legal steps to take from beginning to end.