Debt Inheritance: Credit Cards, Tax, and Other Liabilities

Asset Protection

An individual may accumulate assets during his or her lifetime, but debt may reduce or eliminate an inheritance family members expected to receive. Loved ones may “inherit” debt if a decedent lacked effective estate planning, beneficiary designation updates, and asset protection.

Debt manifests in different ways. If a decedent required expensive medical treatments or end-of-life care not covered by insurance or public benefits, the remaining balances may need to be paid off through assets left behind in the estate.
Credit card balances are paid with the decedent’s assets, however, if another individual co-signed with the decedent on a credit card, loan, or lease, then the living co-signer is responsible for satisfying the debt. There is a caveat. If the co-signer defaults, the creditor may pursue the decedent’s estate.
Unpaid taxes may threaten an estate as well. A decedent’s assets—bank accounts, real property, and even Individual Retirement Accounts (IRAs)—are vulnerable to tax debt. (Read more about IRA tax liability.) Something important to know for those considering serving as an executor: Executors can be personally liable for unpaid taxes of a decedent or an estate.
In North Carolina, debt “inheritance” is administered through probate. To protect assets from creditors and preserve wealth for loved ones, an estate planning attorney can advise asset preservation strategies and tools.
Improving asset management during an individual’s life can help address potential challenges. Listing all assets, creating a digital estate plan so that appointed individuals have access to online accounts, and leaving behind easy-to-find information about life insurance policies helps ease estate administration. (If surviving family members know the decedent had a life insurance policy, but can’t locate it, learn about how lost life insurance policies are addressed.)
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