You Cannot Inherit Debt

Welcome to the Fenner’s Law Podcast. Today’s topic:  You Cannot Inherit Debt is part of our Will’s Made Easy series. My name is Robert Fenner. Thank you for joining me.

Today I am going to talk about Estate Debts. Ughhh, an irritating topic I know but it is important, and it causes a whole lot of confusion.

Let me start by saying that your debt does not die with you. If you have assets, for example, money in the bank, a house, and other valuable things, before you can give your stuff to your children and heirs, any debts you have must be paid. The process of paying off your debts and distributing your assets is called probate. In North Carolina, probate consists of five general stages.

First, your executor collects and then totals the value of your assets. They then pay funeral expenses, administrative fees, and any taxes dues. If you had any secured loans like a mortgage or a car loan, they would be paid. Any unsecured loans like credit card debt are paid next. Anything left over is then divided among your beneficiaries.

Like I said earlier, your executor will use your assets to pay off your debt. This could mean spending your cash to pay creditors or selling your stuff to raise the money to pay the debt.

I think most folks aren’t surprised that their debt outlives them. But you may be surprised that your children and heirs are not responsible for any debt, solely in your name. You cannot inherit debt.

However, if someone co-signed for a loan that you received, they would remain liable for the debt. For example, if you borrowed $10,000 to remodel your basement and your son cosigned on loan, he will have to pay any amount remaining on the loan once you are gone. If someone co-signed on your car loan, a mortgage, or even school loans, the co-signer would remain responsible for any remaining debt.

So, in a nutshell, while you children and heirs will not be responsible for loans only in your name, however, any debt you have will be paid from your assets and thus could reduce any gifts you intend to give.

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