Can someone please explain exactly who debt works in relationto death? I understand it means you owe money, but if my parents die owing a bunch of money and leave stuff to me, do I inherit their debt as well? Do I have to pay their medical bills?
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normal procedure is that anyone who your parents owe money too need to settle that with your parents estate (which is a fancy name for “all thier belongings”), and then whatever is left is passed on too you.
Before any inheritance is given out, debtors are allowed to file a claim against the estate of the dead person. After the claims are resolved the heirs can get their inheritance. Debts are not passed down to the heirs in the US.
As u/twelveparsnips says, debts do not “pass down” automatically to heirs in the USA (Not necessarily true of all countries). Creditors are allowed to claim from the estate of the deceased and only what is leftover is passed on to their heirs.
It is far beyond ELI5 if there are trust funds etc involved – get legal consultation.
Also while debts are not “passed down” automatically this is true only if you did not sign up personally to guarantee their debts or payments. Especially in family situations, some people might blindly sign guarantee forms which (ELI5) binds them to pay the bills in case the other party fails to.
In the United States at least (I can’t speak for other countries) people don’t inherit the debts of their parents. Creditors can take from the estate (the estate is the stuff you inherit) but you can’t personally be on the hook even if the entire estate is not enough to satisfy their debt. The worst case scenario is that creditors take everything from the estate to satisfy the debt and leave you with nothing, but you won’t have to pay out of your own pocket. You would only be personally responsibly for debts that you yourself assumed, for example if you co-signed a loan.
The one exception to the above is some states (but not all) have what are called filial responsibility laws, which means if your parents are indigent (meaning they can’t financially support themselves), you could potentially be responsible for paying some or all of their medical debts or nursing home expenses, but only Pennsylvania has actually enforced this law anytime in the last few decades.
So hypothetically speaking, if someone were to rack up massive debt, but own nothing/have no income, they have been in a relationship for over a decade but have not joined any financial accounts or bills, if this person were to die, would the debts simply vanish, as there is nothing to collect from the deceased?
The TLDR is that you will never have to pay off any of their debts when they die. If their debt was more than the value of everything they owned, you will probably not get anything as an inheritance but you won’t have to pay anything else.
As an example, if your parents were $1,000,000 in debt but owned $2,000,000 worth of stuff, they’d take from that 2 million to pay off debts and then you’d get the remaining 1 million. If instead they were 2 million in debt and owned 1 million worth of stuff, that 1 million would be taken to pay the debt but you wouldn’t have to make up the difference of 1 million, it’d just be gone.
Obviously simplified for ELI5 but the general idea is that you don’t have any legal obligation to pay off their debts, but their debtors have a high priority to their property than you do
> owing a bunch of money and leave stuff to me, do I inherit their debt as well? Do I have to pay their medical bills?
Yes. At least that is how it works here. All of their belongings, good and bad ones, go into the estate. That means for instance their house, but also their medical debt.
If the net estate looks like it will have negative value, you can refuse the inheritance. In that case, at least here in Belgium, the estate goes to the government (if all of the inheritors refuse it).
Could you take out a big loan, burry the money somewhere in a forest, die, and have your kids dig it back up?
Lets say I own my home outright, no mortgage, and have a million dollars in the bank.
You are my heir.
I also owe $500k in secured credit to a bank.
Then I die.
My Estate is required to pay off any and all debt. You get the rest.
Now, lets say I rent an apartment, have $1000 in the bank, work a job, and have a car loan for a $50,000 car.
You are my heir.
Then I die in a car accident that totals the car.
My Estate tries to pay off all debts. There will be no money left over, so you get squat. The car company might TRY to get you to make good on the outstanding loan, but you are not legally bound to that debt.
You are never responsible for a decadent’s debt unless you co-signed the loan with them or otherwise took responsibility (in the US under current law). Debt collectors may contact you and make you think you are, but you are not. If a person dies with a loan or line or credit solely in their name, the debt dies with them.
With that being said, if someone does with an outstanding debt their creditors can try to collect that debt from the deceased person’s estate. In simple terms, when someone dies, a court will make a list of all the stuff the own (assets; a house, a car, money in the bank, etc.) and all the stuff they owe (debts, like an outstanding mortgage or car loan or credit card). Creditors do have the right to collect on their debt from the decedent’s assets. If there are insufficient assets, the creditors are out of luck. But the point is that it is sometimes to your advantage to pay off a decedent’s debt. For example you may want to pay off their outstanding mortgage to inherit their house and not owe anything on it anymore.
TL;DR if the debt is solely owned then it dies with the decedent and you are not responsible for paying it. However creditors can and will attempt to collect their debt against the decadent’s estate. It may sometimes be to your and advantage to see those debts paid.
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