- Hunter C. Hodges
DO YOU INHERIT DEBT IF YOUR PARENT DIES IN ALABAMA?
A common question from clients is whether they will personally inherit their parents’ debt. The short answer to that question is generally no, with certain caveats outlined below and other exceptions not mentioned here.
Estate Debt, Not “Inherited” Debt:
Most often, the debt of a single or widowed parent becomes a debt owed by that deceased parent’s estate. In the context of this post, the “estate” is the legal entity holding the assets and debts of the deceased parent. Typically, an estate must be “administered” (i.e. processed through Alabama courts) in order for the beneficiaries/heirs to receive estate assets that are required to pass through probate. See our post entitled “How to Probate a Will in Alabama: Phase One” for more information on that topic. Whether an asset is required to pass through probate is a legal question, which usually requires a specific analysis of the asset in question by a lawyer or other knowledgeable person. If the deceased parent was married at the time of his/her death, the debts and assets are often jointly-held and there may not be any estate assets to pass through probate or estate debts to deal with (see below for more on joint debt). Accordingly, this post is most relevant after the death of a single or widowed parent.
Part of administering in the estate involves giving the deceased’s person’s creditors the opportunity to present “claims” against the estate. If the debt is valid and a Proof of Claim is timely filed, then the estate may be required to satisfy the debt before distributions of assets are made to beneficiaries/heirs. Therefore, an estate debt can reduce the amount of inheritance from a parent, but it does not usually become the individual responsibility of the children. Dealing with estate debt and estate creditors can be complex and every estate administration is unique, which is one of many reasons why having an experienced Alabama probate attorney providing legal representation is essential.
Joint Debt and Assumed Debt:
On the other hand, a co-borrower of the deceased parent will often remain on the hook for a jointly held debt, such as a car loan, credit card or mortgage. If the deceased, co-borrower parent primarily enjoyed use of the car, credit card or home, then it can certainly feel like “inheriting debt.” Legally, however, that obligation was already incurred by the co-borrower and is not “inherited” at the time of the parent’s death. This post does not address joint tax debt, which should be discussed with a CPA and attorney.
Relatedly, a beneficiary/heir may choose to “inherit debt” by legally assuming debt owed by the deceased person. This regularly happens when a beneficiary/heir wishes to keep a vehicle of the deceased that has a loan against it – the beneficiary/heir receiving the vehicle can complete the proper documentation with the lender to assume that debt in the beneficiary/heir’s name. There is a similar process for assuming a mortgage if the home will not be sold during the estate administration. Assuming debt can be a beneficial transaction when there is enough equity in the encumbered asset.
Important Author’s Note: This post is simplified in order to provide general information and is not an exhaustive analysis on the subject addressed above. You should not take action or refrain from taking action based on the general information in this post. Instead, consult with an attorney and obtain a formal legal opinion tailored to your circumstances.
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