Do Children Get Their Parent's Debt When They Pass Away?

When a parent passes away with outstanding financial obligations, children may become concerned about their responsibility for paying these debts. Children however, can only inherit their parent's debts if they participated in the original debt agreement, as in the case of a co-signed credit card or mortgage. In most cases, the payment of the decedent's debts becomes the obligation of the estate executor.

Mutual Obligations

A child may unintentionally become responsible for a deceased parent's debts if he shares a bank or credit account with his parent. It is not uncommon for an elderly parent to open a joint account with an adult child so the child can write checks and pay bills on is behalf. When this occurs, any money left in the account at the time of the parent's death may be used to settle outstanding debts. Likewise, creditors can collect payment from any person listed as an account holder.

Gifts

A person may know beforehand that he is likely to die with outstanding financial obligations. As a result, he may decide to distribute money or assets to relatives to avoid having such property come under the claim of creditors and other debt collectors. If you received a gift of value from a parent before they passed away, creditors have the legal right to reverse the gift and use it to pay off the decedent's debts.

Debt Payment

Most estates must go through a state court probate. This process ensures that the decedent's assets are processed and distributed in accordance with state law. When a parent does not have a will or the will does not state an executor, the court may appoint one. If you are the executor, you are responsible for notifying and paying all creditors that have a legal claim to the estate. Secured debts like car payments and mortgages have a priority claim over unsecured debt, like credit cards and general bills.

Inheritance

When a parent dies with outstanding debts, the amount of the estate that is left for distribution as inheritance, depends on the amount of debt the decedent had. As the first priority of the court is to ensure that all debts are paid, relatives may receive a smaller inheritance if the amount of debt is high relative to the estate's total value. If the estate runs out of money before all debts are paid, creditors must take a loss.