Adult children are often very interested in what estate planning their parents have done. In some cases, they are worried that the parents do not have an estate plan at all. In other cases, they want to know more about how that plan will affect them.
One concern that sometimes comes up is that the parents have a high level of debt. Adult children may be worried that they are going to inherit these financial obligations. They are not sure how they would afford the debt, but they also know their parents may not pay it off before they pass away. So, how is it going to be addressed?
Debts are paid by the estate
The good news for these potential beneficiaries is that they do not have to worry about inheriting the debt themselves. If their parents have outstanding credit card debt, for example, the estate executor will settle the balance with funds from the estate after the parents’ passing. The children are not suddenly going to owe the credit card company the outstanding balance.
This can affect asset distribution. For one thing, even if the estate plan says that the money should go to a beneficiary, it may instead have to be used to pay off an outstanding debt. This means people may inherit less than they expected.
In other cases, loans may be attached to certain assets. If an adult child is left their parent’s home, but there is still a mortgage, for instance, they have to decide if they want to assume the mortgage in order to keep the house. But they would also have the option to simply sell the home, settle the loan and keep any remaining proceeds from the sale.
The legal process
Handling assets and debts in a situation like this can be complicated, especially after an unexpected passing. Those involved need to know what legal options they have, and it can help to work with an experienced law firm.
