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Inheriting Debt


For many families, debt is standard and is often carried until death. From credit cards, car loans, mortgages, student loans, and well, anything else, living in debt is just taken for granted. Doesn’t everyone have some form of debt now a days?

Since debt is taken for granted we often do not think about the effects of it after death. The old phrase, “You can’t take it with you”, is applicable in this situation. Of course, since you do not have any money, you would not be in debt if you did after all; you will therefore be unable to take all that debt with you.

So what does this mean to your children?

Inheriting debt is pretty much impossible but there are exceptions to this statement. You will pass on debt if your kids:

  • Are cosigners for a loan.
  • Have a joint bank account with you.
  • Is listed on the credit card
  • Is listed on mortgages
  • Is listed on auto loans

The issue of inheriting debt is especially taxing for parents who fear passing on the financial burden to their children. Ideally, we all want to pay off whatever debts incurred through life including credit card debts, mortgages, auto loans, and especially those student loans. This may not always be the case and in fact, you may even gather more debt during the last few days on earth through medical expenses. This can be especially aggravating if you had paid off everything else.

Of course, debt should not be on your mind during such times, but it may give you pause before you reach such a point. Well, to relieve any undue stress financial experts are quick to say that your children can not inherit your debt. As mentioned above there are exceptions to the rule, something else those same financial advisors are even quicker to point out.

In order to pay off whatever debt you have at your time of debt is taken care of by your estate. This means that your home, savings, and other assets are used to pay off creditors. Afterwards, whatever is left, if there is anything left is given to your children. Parents certainly do not want to leave their children worse off then they were, so it is important to take care of any debt if possible.

Children who believe that they are unable to acquire their parent’s debt will still need to take care. It is possible to acquire debt unintentionally.

One of the ways to incur a parent’s debt is by assuming the payment of their bills. This is not to say that you should not help the parents out but you need to do so in such a way that creditors will not mistake the child as assuming the parent’s debt.

Deposit money in the parent’s account and have them fill out the checks this way there will be no mistake.

So, while incurring a parent’s debt is virtually impossible, it can still happen even unintentionally. Parents should take all necessary precautions to insure that the debt is not passed on to loved ones.

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  1. admin says:

    Update –
    I have been informed that there are a few countries that do pass debt on to the children – namely China/Taiwan. If the parent dies then the parent’s debts will pass to the oldest child. If that child can’t pay then the debt collectors will come after the next child and so on.

  2. Peg Hamilton says:

    Do your children inherit parent loans taken out for maintainance while thir children are in college?

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