It is very rare for someone to pass away without any debt at all. They may not have substantial debt if they have paid off major expenses – their mortgage, business loans, student loans, etc – and taken direct steps to pay down what they owe. But they may still owe taxes, utilities, credit card bills and other minor debts.
When that person passes away, do their direct descendants – their adult children – inherit their debt? After all, the estate plan is going to guide the process of passing assets on to the next generation. Does this mean that the debts are also going to get passed down – and will the children then be responsible for paying off money that their parents borrowed?
The estate and the executor
No, children do not inherit their parents’ debts. Instead, these debts are paid by the estate itself. This is one of the jobs that the estate executor has, along with things like taking an inventory of assets, distributing the estate plan and passing out assets within that plan.
For example, say that someone has $100,000 that they want to leave to their beneficiaries. But they have $10,000 in outstanding debts when they pass away. The estate executor would first pay off the $10,000 and then distribute the remaining $90,000 as instructed. In some cases, then, beneficiaries may receive, slightly less than they would have received otherwise, but they do not have to personally pay off debts that someone else took out – even a direct relative.
Estate planning and estate distribution can not get complicated, and it is important for all involved to understand what legal steps to take.
