When a person passes away with debt, it has to be addressed during probate, along with their assets. This is true if they have major debts, like $100,000 in medical bills, and if they just have minor debts, like $2,000 in credit card charges.
The way that debt is addressed is simply that it belongs to the estate itself. The estate executor is granted access to the deceased person’s financial accounts. Creditors make claims against the estate. The executor then uses the money from these accounts to pay off the remaining debt before distributing an inheritance to the beneficiaries.
No one will inherit debt
One of the biggest worries that people have, if they know their parents have a significant amount of debt, is that they are going to inherit that financial obligation. If you are concerned about this, rest assured that that is not how it works. You will not inherit your parents’ debt unless you co-signed on those accounts with them while they were still alive.
That said, as you can see from the above, their debt could have an impact on your inheritance. A person’s estate plan may say that you should inherit all remaining funds of $150,000, for example. But if they first needed to pay off $100,000 in medical bills and $2,000 in credit card bills, there would only be $48,000 remaining for you to inherit.
Addressing debts and financial obligations is just one step that has to happen during probate, and it is important for estate executors, beneficiaries and other family members to understand what legal steps to take.
