17 Dec Can You Inherit Debt from Your Parents?
If your parents have a substantial amount of debt, you have a very good cause for concern. You may be wondering what happens to their debts after they die, or worried that you might be held responsible for paying them. Fortunately, you can not inherit debt from your parents. But if they die in debt, it could mean losing precious assets like their family home to creditors. Let’s take a closer look at how debts are settled after someone dies.
Do You Have to Pay Your Parent’s Debt When They Die?
No—you can not be held personally responsible for your parent’s debts. Unless you were a co-signer on a loan or a joint account holder on a credit card, you will not inherit their debts. However, before you can inherit anything of value from your parents, their debts will need to be settled first.
If your parent’s debts are greater than the size of their estate, some debts will have to go unpaid. It also means that you won’t get much of an inheritance, since any valuable assets—bank accounts, life insurance policies, real estate, etc.—will have to be used to pay off their debts.
Settling an Estate with Outstanding Debts
If you are the executor of your parent’s estate, it will be your responsibility to settle any outstanding debts using the assets that remain. In this case, you might start getting calls from your parent’s creditors. It is important to note that it is illegal for a creditor to harass you about paying your parent’s debt, or to suggest that you pay their debt with your own money.
Any outstanding debts will need to be paid according to a specific hierarchy:
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- Estate administration fees
- Funeral costs
- Family allowance for dependents
- Federal taxes
- Medical bills
- Property taxes
- Secured loans and mortgages
- Credit card debts and personal loans
Arizona’s Laws on Debt and Inheritance
In Arizona, any dependents the deceased was supporting are automatically entitled to an allowance. Their spouse and minor children will be paid a “family allowance” out of the estate. However, if the estate is insufficient to cover their debts, this allowance is capped at one year.
Unlike many other states, Arizona does not have “filial responsibility” laws. Filial responsibility is the duty to provide psychological, social, physical, and financial support to family members. But in Arizona, children are not legally obligated to support their parents financially, nor can they be held responsible for their parents’ debt.
When to Seek Legal Advice
If you’re worried that your parents might not live to see their debts paid off, you should meet with an estate planning attorney. The legal team at Phelps LaClair can help you take the right steps to protect your parents’ assets from creditors. For example, we can set up an asset protection trust to ensure that your family home stays in the family.
Give us a call today to schedule a free consultation—you’ll be glad you did!
Photo by Annie Spratt on Unsplash used with permission under the Creative Commons license for commercial use 12/16/24.