Does Debt Get Passed Down to Heirs?

by John Cromwell

When a person passes away, he leaves behind property and family members. Many times, he also leaves behind debts. Traditionally, an heir is a person who acquires property due to the death of a blood relative. This includes children, parents, aunt, uncles, nephews, nieces and cousins, but not a spouse. However, the term heir has also come to mean anyone who gets property through a will, and would therefore include a spouse. Generally, an heir does not “inherit” the debt of the person who died.

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Probate Process

When a person passes away, his property goes through the probate process. During this process, a court appoints an administrator to gather all of the decedent’s assets and determine what outstanding financial obligations he had prior to his death. Using the decedent’s assets, the administrator is required to settle all of the outstanding liabilities. Only after those debts are paid in full can the administrator distribute what remains of the decedent’s property to his heirs and beneficiaries.

Probate Property Subject to Mortgage

One issue with decedent debt and estates is that sometimes a decedent’s property may go into foreclosure while it is being probated. This is because during the probate process the administrator does not make the mortgage payments required. While the probate process normally would require that the mortgage be resolved before distributing the property to the heirs, this is an instance where the decedent’s debt could significantly limit what his heirs can get. If you are an heir, be sure that the estate’s administrator is aware of any mortgages so he may make all required payments.

Personal Guarantee of Heir

While an heir is normally exempt from paying the debt of a decedent, they can be held accountable for any debt they co-signed. This means that if an heir personally promised to settle any debt if the decedent did not pay, the heir is required to settle the debt with his own funds if the estate cannot pay off the obligation.

Community Property

Nine states follow the doctrine known as community property. In those states all property that is acquired during a marriage is considered “community property” and automatically goes to the surviving spouse. However, all debt that is incurred during the marriage is also transferred to the surviving spouse; the spouse is required to pay off the remaining debts with her own personal resources. There states that operate under community property are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.