Inheriting Debt: What to Do

Most children hope that they will be granted a large sum of money in the form of an inheritance from their parents someday. They imagine buying their dream car or financing their mortgage with the money that they are granted. Some hope to go shopping, others hope to eliminate their student loans. No matter what you plan to do with your inheritance money, it can be frustrating or terrifying when you receive your inheritance only to find that there is no money to be granted. In fact, in some “inheritances,” you will be given debt instead.

Despite common belief, the debt that is affixed to your name upon your loved one’s passing won’t just do away. A lot of debts will pass on to the next generation, rather than disappearing upon the debtor’s death. For Lisa Boesen, inheriting debt was nothing short of a nightmare. According to Fox Business, Boesen was handed $60,000 worth of credit card debt when her parents passed away. Within a month, creditors began calling and aggressively demanding that she pay back the money. One credit card company eventually put a lien on the house that Boesen had inherited. It took hard work and negotiation to pay off the debts, which were reduced by the credit card company. Boesen told Fox News that the entire fiasco was a “terrible experience” and that she was already stressed from grieving and managing the estate. She didn’t want to have to manage her parent’s debt as well.

Fox News reports that seniors are piling on debt faster than ever and leaving more and more heirs with debt rather than finances. Nearly 40 percent of all seniors admit that they have accumulated debts in their retirements and have no plans to pay off the money within their lifetime. Many seniors are unaware that the debts that they don’t want to pay will become their heir’s responsibility and can be an incredible burden to a grieving child. The CESI Debt Solutions suggests that seniors tell their children how to deal with creditors and let them know how much debt they assume that they will have at the time of their death. By letting your children know what they have to expect, it may help you to clear up complications with debt.

Many times, the probate court will demand that all debts need to be paid to a creditor before the heirs are able to collect their share of a loved one’s estate. If there’s no money left after debts are paid, and if there’s still more debts to satisfy, then there can be complications. Normally, funeral expenses, taxes, and administrative fees will be paid first out of an estate. After this, secured loans like car loans or mortgages will be paid. Then creditors have a right to assets. The family may be protected by certain creditors by state law, so you will want to discuss that provision with a local attorney. Any money that’s left after all of these expenses are satisfied will go to unsecured debts. If there’s no money left, then credit card companies will typically write off the debt. If it’s a lot of money, then the company may decide to go after heirs instead. Normally, debts less than $25,000 will be forgotten, while debts over this expense will be pursued.

If you cosigned a loan with someone, then chances are that you will responsible for the full debt on the loan when your loved one passes away. This is an important detail, and you should avoid cosigning if you can help it. It’s also important to note that if the debt your loved one left behind is significant, the state may be liquidated. This only happens when the debt is upwards of $25,000, but the creditors in your state may have the right to take this action. They can take all stocks, bonds, real estate, or even family heirlooms in order to satisfy the expenses that the decedent was not able to pay for. To avoid a disaster like this, talk to your parents about their financial situation now. You will want to be ready and prepared for the debts that need to be satisfied upon their passing someday. When trying to handle debt, it’s important to have a probate attorney on your side. You will not want to handle this by yourself, because there may be laws to protect your from certain payouts and stop creditors from seizing your property. Talk to a probate attorney for more information on what to do when you have inherited debt.