Inheriting debts is not something anyone wants to face, but it’s a situation that many people come face-to-face with after someone in their family passes away. Keep reading for an outline that shows which debts can be inherited as well as a rundown of protected asset classes so you can build a stronger financial plan. 

How debt gets passed down

While you can’t inherit most forms of debt, the deceased person’s debts will likely be subtracted from their estate, which ultimately reduces the amount of inheritance that is available. For example, if a person dies with $40,000 in debt and an estate valued at $800,000, the beneficiaries of the estate would receive $760,000 before taxes are deducted. 

If the estate doesn’t have enough funds to pay for the remaining debt, the debts might not be paid and creditors could end up dismissing what is owed. In some cases, you’ll be held liable for the debt. 

How to manage debt after death

Inheriting debts is not something anyone wants to think about when they are grieving, but when you lose a loved one who left a lot of debts behind, debt collectors might come calling. If you find debt collectors at your door, they might even be trying to collect a debt that is either no longer applicable or that has passed the statute of limitations. 

In addition to trying to manage your grief, you may not have a full picture of your loved one’s finances and what they were liable for prior to passing away. Likewise, you might not have any clue what you are now liable for either, which is why it can help to hire a lawyer.

Also, when you’re left wondering if you inherit your parents’ debt now or not, remember that the estate will handle debt in many cases. Don’t jump to conclusions or worry about responding to a debt collector at the door. Leave everything up to the estate lawyers you have hired to manage the estate. 

How to manage debt collectors after death

Is debt inheritable? It can be, but don’t act on any debts just yet. Remember that just because a debt collector comes calling doesn’t mean you have to pay right away or even at all. 

Debt collection agencies are allowed to contact the executor of an estate or a surviving spouse, at which point they may request payment. However, they aren’t allowed to claim that the debt is owed by the beneficiaries nor the surviving family members. 

Collection agencies must clearly state that the surviving family members are not obligated to pay the debt, but you shouldn’t necessarily believe everything a debt collector says, especially about inheriting debts. They may be pressing you to acknowledge the debt as a way of extending the statute of limitations on old debt. 

If a debt collector contacts you, take whatever information they are offering and present them with a copy of the death certificate. Do not acknowledge the debt, offer payment plans or make promises about anything. You can simply state that the person in question is deceased and that you are unaware of any debt in their name. 

You can also ask if the debt is time-barred. Creditors are legally required to disclose if a debt is time-barred as well as the name under whom the debt is listed. This will help you decide if any further steps are required regarding the process of inheriting debts.

Debts that can be inherited 

Generally speaking, family members won’t be required to use their own money to pay for a deceased relative’s debt. Many debts cannot be inherited, but some debt can be passed along to other family members. 

These types of debt are usually those of a surviving spouse, a co-signer on the debt or in the form of mortgages. Here’s how inheriting debts could affect you.

Joint and cosigned debt

If you are the cosigner on debt or the debt is jointly held, you will be liable for the full value of the debt in the event that your partner passes away. This includes credit card debt, mortgages, business loans, personal loans and a number of other debts. In general, an authorized user on a credit card or bank account will not usually be responsible for the debt. 

Surviving spouse

In some states, debt can be passed along to the surviving spouse. Known as community property states, states in which debt is often passed along to the surviving spouse include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. 

In community property states, the surviving spouse may be required to pay the deceased spouse’s debts. In Alaska, spouses have the option to make their property communal, including debts and assets, when they get married, though most people do not do this.

Mortgage or home equity loan

Inheriting a house means inheriting debts if the home isn’t owned outright. As such, you’ll be responsible for the debts on that property. This means you will be responsible for the continued mortgage payments if you don’t otherwise have to pay the debt in full. 

Assets that are protected from creditors

If you’ve recently received an inheritance and you are afraid that creditors will come after you, remember that these are protected assets. More specifically, protected assets include retirement accounts, trusts and life insurance. 

Trusts are the most favorable way of passing on generational wealth in part because they are categorized as protected asset classes. Also called non-probate assets, you can bypass probate court and receive the assets from protected asset classes directly, regardless of whether or not there is a will. This can prevent beneficiaries from inheriting debts.

Retirement accounts

Retirement accounts include 401(k)s, IRAs, Roth IRAs and any other retirement accounts that list you as a beneficiary. The funds within these accounts should go directly to you, not to creditors. 

Life insurance

The named beneficiary of a life insurance policy will receive life insurance directly. It cannot be taken by creditors. 

Trusts

Trusts hold assets for beneficiaries, and they usually bypass probate processes. In addition to being protected from creditor claims, certain types of trusts can reduce the tax burden that beneficiaries have to face, further protecting the value of their inheritance. 

Not all debt will be inherited

Can you inherit debt? Yes, it’s possible, but it is not guaranteed. Generally speaking, all debt will be deducted from the estate before you receive an inheritance. 

Certain asset classes are protected and they will be passed along to you directly. On the other hand, you will likely inherit debt if you are a cosigner on the debt or the surviving spouse in a common property state. 

Do you inherit your parents’ debt? Yes, you may inherit it directly or have it deducted from the estate. But again, the outcome depends on what is set up prior to their death.  

It’s a good idea to work with your spouse and your family members to set up a financial structure that will protect you and your family in case the worst happens. Retirement accounts, trusts and life insurance are all ways by which your family can ensure they are protected now and in the future. 

FAQs

They say that health is wealth, and that makes sense, right? Your body and your mind, those are investments where you pay attention to what you’re putting in them, the more you have control what you get out of it. One of the most important investments that you can give yourself is sleeping, and if you’re not sleeping, you’re going to be at risk of having poor resiliency to overall stress. The reason why is because when we don’t sleep, our bodies put into a stress state as stress hormones like cortisol and adrenaline are bumped up and our whole system is elevated into a state of inflammation, which causes even further stress. So it’s essential to prioritize your sleep, especially if you’re stressing about finances. So here are my tips for better sleep. Turn off your phone or put it in an airplane mode at least one hour before bed. Turn down all the lights in your home after sunset. Not only is it exposing us to blue light, it’s also exposing us to bright light. Both are associated with sleep disruption. Number two, create a routine for yourself. It does not include your phone, so take time to read. To meditate, to stretch. Go ahead and take a shower or a bath, but make sure you creating time for yourself to relax your nervous system to put you in a better place to fall asleep and stay asleep. And those tips are major because they work for so many people. But here are some additional ones. Don’t eat late. Try not eating past seven or eight. As far as our circadian clocks, eating past that time is going to elevate your cortisol, which can disrupt your sleep. Also, avoid having really big meals for dinner. As I mentioned, your cortisol can go up and your blood sugar. Keep exercising in the morning or in the afternoon. Make sure you’re not working out close to sleep because that’s elevating your core body temperature and that can disrupt your sleep. Keep your room cool. Sixty eight to seventy two degrees is the sweet spot for keeping your body temperature down, so you get a deep and restful sleep. So remember, just like investing, good health is all about consistency, and the most satisfying gains come with patience, time and routine.

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They say health is wealth, and that makes sense, right? Your body and your mind, those are investments and the more you pay attention to what you’re putting into them, the more control you have of what you get out of it. Pay attention to how much media you’re consuming. Really, it’s a major, major stressor for so many of us. Ask yourself when you put on the TV and consume news media, how much of that news media consumption right, that you’re taking in, is making you feel good in your body and how much of it is making you feel anxious and nervous? It just so happens that news media can be a useful way to staying up to date, yes. But it’s also targeted to sell sensationalism, especially in news coverage. So in other words, news media is made to sell headlines and fear because we’re so attuned and glued to our television. And we can easily become stressed when we’re over consuming news media. So make sure you’re taking breaks. Turn off your TV. Sit down. Come back to yourself. Come back to your body. Journal, breathe, yoga, meditation. Whatever it is that makes you feel good, relaxes your nervous system, do more of that. Remember, the body can’t tell the difference between a crappy diet or consumption of fear based news media. The mechanisms the same, it increases inflammation, increases anxiety in the body. So just like good investing, good health is all about consistency, and the most satisfying gains come with patience, time and routine.

They say health is wealth, and that makes sense, right? Your body and your mind. Those are investments. And the more you pay attention to what you’re putting into them, the more control you have of what you get out. One of the major stressors that no one’s really talking about but is right under our nose, in our hands is the excessive phone usage, and it’s a growing concern in our society. We’re on our phones way too much, and by virtue of that, studies are showing that increase screen time has been shown to increase. Guess what, anxiety in subjects and like many of us, including me, were on our phones all the time. Consider putting boundaries on the amount of screen time that you’re being exposed to go to your settings, look at screen time and see how many hours you’re on your phone, and then consider reducing that at the end of the day, checking how much you’ve been using it and putting ceilings on all the apps that you’re using by immersing yourself over and over not only with blue light, but also through social media, it’s having an increased effect on society when it comes to anxiety. And although it can be a really useful source for all of us really powerful technology, our body has yet to adapt to such fast paced information and excessive blue light. So ask yourself, are you using your phone too much? And on the days that you left your phone at home or decide not to use it, do you feel better in your body? If the answer is yes, then I would consider putting boundaries around your phone usage. Remember, just like with investing, good health is all about consistency, and the most satisfying gains come with patience, time and routine.

They say that health is well, and that makes sense, right? Your body and your mind, those are investments. And the more you pay attention to what you’re putting into them, the more control you have of what you get out. We got to pay attention to this one. If you are overburdened with stress, one of the most powerful recommendations I give for patients is getting out into nature. We need to pay attention to the amount of nature that we are not getting because a lot of us are not getting enough nature. And it’s one of the most powerful healing interventions that we can do for our stress, period. We need to connect back to nature and allow our body to de-stress immediately. Well, what’s so special about nature, right? It offfers us negative ions, which have anti-inflammatory and anti-stress effects in the body. When we immerse ourselves in nature with no agenda other than to really just walk around and be in nature. Studies have shown that it reduces the amount of stress and inflammation in these subjects. When was the last time you went out in nature and left more angry than you did coming in or more stressed than you did before coming in? The answer’s probably never. It’s because nature is powerfully healing, and we all know this, it’s why we’re drawn to nature. So make sure you make time wherever you are in the country to get out in nature and find some time to de-stress. Just like with investing, good health is all about consistency, and the most satisfying gains come with patience, time and routine.

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They say health is wealth, and that makes sense, right? Your body and your mind. Well, those are investments. The more attention you pay to what you’re putting into them, the more control you have at what’s coming out. When it comes to one of my favorite investments for your health. It’s mindfulness. Having a mindful practice is a non-negotiable if you are stressed and guess what? We all are. Which is why I preach this to every single person. A mindfulness practice is a surefire way to get you grounded. Especially in those states about anxiety, especially when it comes to finances. Mindfulness practices like meditation or yoga or breath work, etc., they’ve been found to create more anti-stress hormones  in the body and create more consciousness around our breath, which is the quickest way to relieve anxiety and can actually promote the shrinkage of the anxiety centers in our brain and the growth of the centers for safety, security, well-being in our brain. So all you need is about 15 to 20 minutes of a mindfulness practice, and that’s a game changer for stress and anxiety. So just remember in those states of stress, mindfulness practices are always accessible to you. And just like investing, good health is all about consistency. So the more you’re doing this mindfulness practice, the more satisfying gains come always with patience, time, and routine.

Video Transcription

They say health is wealth, and that makes sense, right? Your body and your mind. Well, those are investments. The more attention you pay to what you’re putting into them, the more control you have at what’s coming out. When it comes to one of my favorite investments for your health. It’s mindfulness. Having a mindful practice is a non-negotiable if you are stressed and guess what? We all are. Which is why I preach this to every single person. A mindfulness practice is a surefire way to get you grounded. Especially in those states about anxiety, especially when it comes to finances. Mindfulness practices like meditation or yoga or breath work, etc., they’ve been found to create more anti-stress hormones  in the body and create more consciousness around our breath, which is the quickest way to relieve anxiety and can actually promote the shrinkage of the anxiety centers in our brain and the growth of the centers for safety, security, well-being in our brain. So all you need is about 15 to 20 minutes of a mindfulness practice, and that’s a game changer for stress and anxiety. So just remember in those states of stress, mindfulness practices are always accessible to you. And just like investing, good health is all about consistency. So the more you’re doing this mindfulness practice, the more satisfying gains come always with patience, time, and routine.

Video Transcription

So they say health as well and that makes sense, right? Your body and your mind, well, those are investments and the more attention you pay to what you’re putting into them, the more you control what you’re getting out. So if you are stressed out about finances in your mind, here’s one of my favorite tactics to get back into the body. One of the best ways to do this is to build an exercise routine. You want to shoot for 30 minutes a day of movement. At a minimum, make sure you’re getting your body on the go. For days that you dedicate to working out, mix it with aerobic, right, getting your heart rate up and anaerobic, some sort of weight resistance at a moderate to high intensity for optimal results. And on your off days, make sure you find time to still move. Go for a walk in the morning or on your lunch break or after dinner. Maybe you play a sport, maybe you ride a bike around town, whatever it is that you can fit into your schedule. But movement is essential for stress relief because exercise is a hormetic stress. That means a good stressor on the body, and it promotes inflammatory proteins and hormones to be released that your body is able to handle over time, becoming more resilient to all types of stress in your life. Exercise builds up your resiliency towards stress, especially the more consistently you do it. So remember, just like investing good health is all about consistency, and the most satisfying gains come with patience, time and routine.