When a child and a parent cosign a loan together, then they share this debt. For instance, maybe they have a joint credit card or they cosign student loans or even a mortgage. If the parent passed away, the adult child would still be responsible for that debt.
But what about other types of debt that simply remain when someone passes away? Should an adult child be concerned about paying off their elderly parent’s property taxes, credit card bills, income taxes, car loans and much more? Or do these debts just get forgiven when someone passes away?
The estate pays off the debt
The debt isn’t forgiven, but that also doesn’t mean the child has to worry about paying it themselves. Money remaining within the parent’s estate is used to pay down the debts before those assets are distributed to the beneficiaries.
The estate executor is the one who generally handles this process. That executor may be the elderly person‘s adult child, and they may be worried that this obligation means they are going to have to use their personal finances to pay the debt. But the executor is only obligated to use the assets from the estate. They do not have to use their own finances unless they cosigned.
This means that beneficiaries may inherit less than they expected if there’s a high level of debt that has to be paid first. But they should not have to worry about inheriting debts that they never took out and struggling to pay them back in the future.
Financial issues during estate planning and probate can get very complex. Those involved need to be sure they understand all of their legal options at this time.