Your parents have outstanding debt that you don’t think they’re ever going to pay off. As they continue aging, you start to wonder if that debt is eventually going to come to you.
After all, you will inherit your parents’ assets when they die. Are you also going to inherit their debts? Should you start planning now so that you have some way to pay them off, or are all of your wise financial choices in danger of being wiped out by your parents’ debt?
Your parents’ estate owns the debt, not you
Typically, a child will never be responsible for the debts of a deceased parent. The creditors are not going to call you and demand payment.
There are a few exceptions, but you’re likely already aware of them. For instance, maybe you co-signed on a car loan with your parents. Even if they were paying all of those monthly payments while they were alive, it’s not just their debt. It’s yours, as well, and you have to keep making the payments. Overall, though, any debt they took on personally will not go to you.
So where does the debt go? It goes to the estate. That estate has to be used to pay off whatever is possible, and that’s how it can impact you.
For instance, say your parents still owe $20,000 on a car (in this example, you’re not a co-signer). They’re also leaving you property, such as a house. Any cash that is left to you may have to go toward that $20,000 of debt, and you may need to sell other property, like the house, to cover the rest. The estate is still responsible.
Therefore, the debt does not go to you and actively cost you money, but it can reduce the value of the estate. That may mean that you feel as if you’re losing money because you do not get the inheritance that you expected.
This could get to be very complicated
It’s true that a situation like this can grow very complicated. If you run into any serious issues, just be sure you know what legal steps to take.