When your parents pass away, they have remaining debt. Maybe you and your siblings discover that they owe a significant amount of money on credit cards, they still have a mortgage on their house and they have other outstanding debts they haven’t paid. This could even include things like income taxes or property taxes that they owe to the government.
If you find this out, your concern may be that you are going to have to pay off this debt for your parents. The assets that are being passed on to the next generation are going to be inherited, but now it seems like the debts are also going to be inherited. This may be a prohibitive amount of debt for you, and it certainly doesn’t feel fair that you would have to pay it off when your parents were the ones who took it out. So what happens to that debt?
It passes to the estate
What will generally happen is that the debt will still be owned by your parents’ estate. It is not inherited by you or any of the other beneficiaries unless they were also on a financial account or they cosigned on a loan.
But the estate does still own that debt. So the estate administrator will have to use the assets from that estate to pay off as much of the debt as they can. In many cases, this means paying for everything and then distributing the remaining money. But it is theoretically possible that your parents would have more debt than they have assets, in which case a significant portion of those assets could be lost by paying off the debts first.
This can create something of a complicated financial situation. Be sure that you know exactly what legal options you have.