Many parents pass away with outstanding debt. As a general rule, even though children may be concerned about having to cover these financial obligations, they are not required to pay down these debts.
For example, a parent may still have credit card bills that are outstanding when they pass away, or they may owe income taxes and property taxes to the state. The adult children are not obligated to pay off these financial debts, even as they inherit the assets that their parents owned.
Who addresses the debt?
The estate executor is the one who should satisfy these debts. They are not just going to be waived. Instead, the executor can take funds from the estate itself and settle claims with creditors or the state. This way, the debt still gets addressed, but it does not get passed on to children, grandchildren or members of any other generation.
Are there any exceptions?
Some assets are tied specifically to debt, so adult children who decide to keep those assets may have to assume the debt. A common example is a home mortgage. Parents may not have paid their mortgage off when they passed away, but they may have left their home to an adult child in their estate plan. If that child wants to keep the home, they do still have to take over the mortgage payments until the entire loan has been paid off.
But that child would also have the option to simply sell the property, pay down the mortgage and keep any money that they earned in the sale.
Addressing debts and other aspects of property division can be complicated during probate and estate administration. For those who are going through this process, it can be helpful to work with an experienced attorney.