Let’s be honest. Very, very few people are completely debt free when they die. As a matter of fact, a study performed by Experian credit bureau in 2016 determined that 73% of Americans will die in debt. It is very likely that percentage is even higher today.
There is significant misunderstanding as to whether relatives of a deceased person will inherit debt. The direct answer is no. Relatives cannot be held responsible for debts of the deceased unless the debt was co-signed. For example, if a parent co-signs for a child’s vehicle, and the child passes away, then the parent may still be held liable for that debt. If the deceased person obtained a loan or line of credit on his or her own, with no co-signor, then the debt may only be collected from the estate. This is where things get a bit confusing.
It is not uncommon for heirs to expect a large financial inheritance when a family member dies. What they often times do not realize is that any outstanding debts of that person will be paid prior to any disbursements to heirs. This means that if the person who becomes deceased owed a lot of money to various creditors, there may be no money left over to disburse to heirs once all debts are paid. Many families over the years have been shocked to learn this fact.
There are protections that can be put in place while a person is still living in order to prevent creditors from wiping out an estate. If this is a concern, do not delay in scheduling a consult with an estate planning attorney who can review assets with you, and determine the best placement to protect them for your heirs.