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What happens to debt when someone passes away?

When someone passes away, their assets change hands. The estate plan designates specific beneficiaries who should receive these assets. Often, assets are just being passed down to the next generation – the estate owner’s children.

These adult children are often happy to receive assets, but they may be concerned about debts. Perhaps their parents had outstanding credit card debt that they never paid off. Maybe they still owe money on a car loan or a home mortgage. Perhaps they need to make payments for property taxes, income taxes or utilities. These are just a few examples of different types of debt that have to be considered.

Who has to pay?

The debt isn’t just forgiven when a person passes away. It does need to be paid back and the obligation still remains.

But that doesn’t mean that the adult children inherit the debt. Instead, the estate executor is tasked with using the funds in the estate to pay back what is owed. After that, they distribute assets in accordance with the estate plan.

This can sometimes mean that beneficiaries won’t receive as much money as they believed they would, or as much as the estate plan shows. Some of these debt obligations have to be handled first, and only the remaining funds can be distributed. If the estate plan wasn’t written with this debt in mind, that could mean some assets get used up to pay back creditors, rather than being given to beneficiaries.

Administering an estate

Going through probate and estate administration can be complicated. Those who are involved need to be well aware of all of their legal options as they work through this process.

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