You have always been very careful with debt. You use your credit card sparingly and avoid taking out loans that you think may put additional financial strain on you and your family.
Your parents have not necessarily used the same tactics. You know that they have a substantial amount of debt.
At the same time, you know that your parents are eventually going to pass away and that their assets will transfer down to you, your siblings and other beneficiaries. When this happens, are you also going to inherit their debts? Could this create some financial problems for you in the future?
How debt is handled during probate
Generally speaking, you do not inherit debt that your parents took out. There are some exceptions to this. For instance, if you cosigned on a loan with your parents, you would still be responsible for paying back the balance of that loan after they passed away.
But what usually happens is that the estate executor uses funds from the estate to pay off any remaining debt. If your parents have $100,000 in financial assets and $20,000 in credit card debt, the executor pays off that debt before distributing the remaining $80,000 to the beneficiaries.
This can mean that your parents’ estate isn’t as large as you anticipated, so you may not inherit as much as you would have if they didn’t have outstanding debts at the time of their passing. But you don’t have to worry about inheriting that debt and suddenly finding yourself in a difficult financial position. The debt should be addressed by the executor before it would ever get to you.
Handling debts is just one part of probate. Be sure you know exactly what legal steps to take and what obligations and rights you have.
