After someone passes away, there are many steps involved in settling their estate. One of the main goals is to distribute the person’s assets to their beneficiaries. If they died intestate—meaning they didn’t have a will—this is done in accordance with state law. If they had an estate plan, the estate administrator distributes the assets in accordance with that plan.
However, an estate is likely to have more than just assets. It will probably also include outstanding debts. These could include home loans, car loans, credit cards, lines of credit, outstanding utility bills or other such obligations. It may also include money owed to the government, such as income tax or property tax that needs to be paid at the end of the year.
How are these debts handled? Are they inherited by the beneficiaries along with the assets?
Funds from the estate
Debts are not inherited, so adult children and other beneficiaries won’t suddenly owe money to the government or creditors.
Instead, the estate administrator uses the funds from the estate to pay off the debts. This often has to be done before assets can be distributed. The executor must settle these accounts using the estate’s funds, and only then can they divide the remaining assets in accordance with the estate plan. While this may mean that beneficiaries inherit slightly less than they would have otherwise, they are not inheriting the debt or taking on any financial obligations themselves.
Questions about probate
This is just one of many questions you may have about probate if you’re going through this process. Be sure you understand exactly what legal steps you can take at this time.