Are you responsible for the debts of your parents? For many adult children who inherit their parents’ estates, this can be a real concern. Financial experts say that there may be less danger than you think — in most cases, a Washington estate is responsible for paying its own debt. In other words, it is rare for the debt to be passed on to the next generation; that only happens when certain conditions are met.
Some of those conditions are fairly obvious. If, for example, you co-signed on an account or loan with your parent, you are still responsible for paying that outstanding debt. Other factors may not be as readily identifiable. For instance, if your parent had money left over in a retirement account but failed to name you as a direct beneficiary, then the money will likely be rolled back into the estate. At that point, creditors’ rights will take priority over inheritance claims.
In general, if there are debts outstanding from your parents’ estate, then collection of payment for those debts will take precedence over any claim you have to your parents’ assets. This could cause the amount of your inheritance to drop, but it won’t likely affect your personal finances. One of the most common creditors is actually the federal government; if your parent received Medicaid, for example, the government can actually seize assets from your parent’s estate after his or her death.
Consumer debt is unlikely to transfer to heirs — that is, unless you co-signed. That fact will not prevent creditors from attempting to collect from adult children, however. Credit card companies may only contact the executor of the will, but they might try to convince you to pay the debts even though you are not responsible for those balances. Ultimately, the best method for determining creditors’ rights for your parents’ estate is to simply discuss your situation with a legal expert or financial planner. These professionals may be able to help you learn more about the future of your benefactors’ estates.
Source: CNN Money, “Can you inherit your dead parent’s debts?” Jeanne Sahadi, Jun. 19, 2014