Family members often inherit assets when someone passes away. For instance, adult children may be named as beneficiaries for bank accounts, real estate and more. The will and estate plan help to show how these assets should be handled and divided among the family.
But people often have questions about what should happen to debt. Some people pass away with significant obligations, such as mortgage loans or business debts. Others may leave behind minor unpaid bills, like credit card balances or final income and property taxes. Do family members inherit these debts?
The estate has to pay the debt
In most cases, debt does not pass down to family members. One exception could be if an adult child co-signed a loan with their parent. Then they would be responsible for the loan after the parent passes away, as they are still the co-signer who agreed to pay if needed.
But for most debts—such as outstanding credit card balances, utility bills or unpaid taxes—it’s the estate’s responsibility to pay them. This is handled by the estate executor, who uses funds from the estate to satisfy any remaining debts.
In other words, beneficiaries do not inherit the debt itself. However, the repayment of those debts can reduce the value of the estate, meaning heirs may receive less than expected. Still, no one will suddenly find themselves responsible for $20,000 in credit card debt simply because a parent passed away. In this sense, beneficiaries do not need to worry.
Estate planning and administration can become complex when both significant assets and debts are involved. That’s why it’s important for all parties to understand their legal rights and responsibilities.