05 Dec 3 Things to Know About Inheriting a Deceased Parent’s Debt

The passing of a parent is a difficult event to navigate. In addition to dealing with the emotional toll of the loss, children often have to plan funeral services as well as figure out what to do with all of their parent’s belongings. However, when doing an inventory of belongings, it’s imperative to also assess any debts or liabilities the parent may have accumulated. While a child cannot be legally responsible for the debt their parent leaves behind, it is still necessary to know how a loved one’s debt can affect probate proceedings and a child’s anticipated inheritance.

Solvency of the Estate

An initial assessment must be made as to whether the parent’s estate is solvent or insolvent. Very simply put, do the parent’s total assets outweigh their total debts? Insolvent estates, the debts will be generally be satisfied from the assets and the remainder will be distributed according to the estate plan. Conversely, if the estate is insolvent (meaning the parent’s debts are greater than their assets), children won’t be responsible for their parent’s debt. However, the children will not receive any inheritance as the estate will be used to satisfy creditor claims on a pro rata basis until depleted.

Accounts with Child as Cosigner

There is one exception that will make a child responsible for their parent’s debt. This applies to cases when the child is a cosigner on an account with the deceased parent. In cases where a child is listed as a cosigner, a creditor has the option to immediately seek payment from the child on that debt in the event of their parent’s death.

Property and Mortgages

It is important to ascertain whether assets of the estate have any liens or mortgages attached. This includes any mortgages, loans, or lines of credit that list the property as collateral. In the event a child chooses to sell an inherited property that has an existing mortgage or other debt attached, they will have to use proceeds of the sale to pay off any remaining balances. If a child would like to keep the property, they will become responsible for any mortgage associated with the real estate unless the estate plan provides for the payment of the mortgage through estate assets.

Probate attorneys are able to navigate the effect of debt on a deceased parent’s estate administration and should be consulted early in the process to ensure compliance with the law. Many times, debts can be negotiated down or completely eliminated with the assistance of an experienced probate attorney.