Are You Responsible for a Deceased Parent's Debt?

You are not responsible for your parents’ debt. This is true regardless of whether you inherit assets under their estate. However, a parent’s estate must settle any debts before you can inherit. And children often share financial responsibilities with aging parents, often medical and housing costs. This can end up feeling like you are responsible for the debts your deceased parent took on, but it is not the same thing. Unilateral debt is held and paid only by the individual that took it out. Here’s what you need to know.

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Debt and Estates

When an individual dies, their debt and other liabilities pass to their estate. This can mean several different things, depending on state law and marital status.

In general, for most states and assets, if there is a surviving spouse they retain most assets. From there, debts are disposed of on a case-by-case basis. This generally depends on the law of the jurisdiction and the shared nature of the underlying debt. For example, a surviving spouse will almost always remain responsible for the deceased’s spending on a joint credit card. On the other hand, if the deceased spouse held a secret credit card in their own name, many jurisdictions will not assign this to the surviving spouse.

Aside from spousal inheritance issues, debt passes entirely to an individual’s estate. The administrator or executor uses the assets in an individual’s estate to pay all known debts and liabilities, then they distribute any remaining assets to heirs. For example, say that the deceased owed $200,000 on their mortgage. The executor might sell the house, pay the mortgage, then distribute the remaining equity to the deceased’s heirs.

An estate is closed once it has run out of assets. Usually, this happens after the administrator or executor pays all debts and distributes the remaining assets. In the case of insolvency, however, the estate runs out of assets before paying all debts. In this case the estate is closed and the remaining debts are resolved unpaid.

Take note: It is illegal for debt collectors to attempt to collect an estate’s debt from family, heirs and loved ones. If your parent dies with unpaid debts, a debt collector can pursue the estate. They may call if you are the executor in an attempt to do so. However, they may not, under any circumstances, attempt to collect this debt from you personally.

Shared, Joint and Inherited Debt

There are two main situations where it can appear that you have inherited your parent’s debt.

The first is if you would like to inherit assets from an estate burdened by debt. Before the executor can pass along any assets to the estate’s heirs, they must first pay off all outstanding debts. This means selling off property if your parent did not have enough financial assets.

That can create debt issues if your parents owned personal or real property that you would like to inherit. For example, say that your family has owned a vacation cottage for several generations. In order to make necessary repairs, your parents took out a $100,000 mortgage on it. They did not pay the mortgage and their estate does not have the cash to do so. In this case, in order to inherit (and therefore keep) the vacation cottage, you would need to assume responsibility for that mortgage. Otherwise, your parents’ executor will sell the cottage to pay that debt.

This can effectively feel like inheriting debt, since to keep the house you must pay the mortgage, but you are free to walk away without taking the asset.

The second, relatively common, case is if you jointly held this debt with your parent. This can happen, for example, if you held a joint loan, a joint credit card, or if you co-signed a loan with your parent while they were alive. In any case where you share joint responsibility for a loan with your parent, you will owe any payments they do not make. This is true whether they choose to miss payment or whether they are unable to pay due to death or incapacitation.

You will not always be responsible for payments in the case of a joint loan. Depending on the nature of the loan and the laws of your jurisdiction, the estate may pay the debt. However, if the estate does not or cannot pay off the loan, you will owe payment. This will not be a case of you inheriting their debt. Rather, this will be payment on debt that you already assumed by taking a joint loan.

The rule of thumb here is this: You cannot inherit your parent’s unilateral debt. Anyone who attempts to collect that debt from you is breaking the law. You can assume debt on behalf of your parents, either by attempting to inherit debt-burdened assets or by sharing a joint loan. However, this is always known and voluntary.

Bottom Line

You are not responsible for your parent’s debt. Any debt that they held is managed through the estate, and then disposed of. However, if you choose to take out a joint loan with your parents while they’re alive or to assume a burdened asset from their estate, you can voluntarily take on their debt.

Debt Management Tips

• Paying off debt is a difficult field. Often, one of the biggest issues that people ask in this field is, when should I prioritize debt vs. savings?

• A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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