Inheriting is rarely as fun as films and books would have you believe. Instead of a previously unknown great-aunt who just so happens to deem you the sole heir to her surprisingly large fortune, it usually comes with the death of a close relative and more often than not, strife among the surviving parties.
The age-old ‘motive for murder’ trope aside, if you do have a tidy sum of money and several potential heirs, they are likely to either begrudge each other part of your fortune – finding arbitrary factors to determine who might deserve more than the other. If your family is hideous to begin with, leaving all your money to an unsuspecting and unrelated caretaker á ‘Knives Out’ may be the best option, but no one can claim that was a smooth ride either.
Even if the matter is clear and children and grandchildren are beloved, it isn’t as easy as just reading the will. The bureaucratic hurdles standing between heir and inheritance are sometimes immense, annoying and often take a decent chunk of what was left.
But what if you were not only broke when you die, but still owe money to creditors? Is all debt forfeit the minute your heart stops beating or are you merely passing it on to your unsuspecting children?
To begin with, here’s what normally happens when you die. Depending on your current religious affiliation, your soul may be judged by Anubis, or you may even be conscripted to kick an endless amount of ass for the glory of Odin in Valhalla… Also, FYI, there is a good chance your body back on Earth will poop itself spectacularly… For an in depth look at this, see our video Do People Really Defecate After Death?
But as to your assets, if there’s a last will and testament, the case seems relatively simple. Heirs or beneficiaries are designated prior to death and documentation notarized, so that it is clearly and unmistakably stated who is to inherit what. The ‘what’ may include money, but also real estate or even stocks. In the case that the assets are not individually listed and attributed to specific people, a fight to the death between all named beneficiaries is the only option. Or all the assets are simply distributed evenly, which may or may not kick off an epic legal battle if someone in the chain is unhappy about this.
In order to kick-start the arduous process of inheriting, the will has to be submitted to the probate court, which then authorizes an executor. Only then can assets officially start moving to the heirs. Additionally, there may be restrictions to the inheritance, such as a sum of money only being paid bit by bit in small amounts per year or allocated to paying for higher education.
If there is no will, it’s significantly more complicated and can therefore take months or even years for the matter to be settled. Perhaps the most famous instance of this was the case of Howard Hughes, whose lack of will resulted in countless legal battles spanning all the way up to 2010- 34 years after his death.
In the case of no will, it is still the probate court who has to deal with the questions at hand, but they now have the dubious pleasure of having to determine what the deceased would have wanted and check all assets for possibly coming with an already named and attached beneficiary. This may be the case for bank accounts and retirement plans, but jewellery and other assorted heirlooms are even more difficult to allocate. Needless to say, some patience is required, and the existence of a will is vastly preferred.
This brings us to debts. As to whether or not debt can be inherited, the answer lies somewhere in between. In the vast majority of cases, no, in modern times at least, your children will not have to pay off your bills for the rest of their days, cursing your existence between the three jobs it takes to both take care of their families and to make enough to satisfy your creditors. But the debt also doesn’t suddenly disappear entirely.
First, one needs to distinguish between a secured and an unsecured debt. A secured debt means that certain assets are put forth upfront to balance the loan taken. For example, a piece of land may be set as security for a newly acquired house. If the debtor dies before the loan is paid off, the aforementioned asset – the land – is seized and taken to settle the debt.
An unsecured debt is one accrued without anything in particular given as a security asset. In this case what happens is that your estates are used to pay off your debt. That means that if you own any sort of property, be it house, farmland or just a neat assortment of IKEA furniture, your creditors can now feel free to cash in on as much of them as equals the sum of your debt.
Now, depending on just how much that antique stamp collection is worth, the actual total of your debt may be paid off with some to spare for your spouse and children. Should the debts you have accrued during your lifetime surpass the worth of laptop, printer and tv, any and all savings, and everything else you once called your own, your heirs are clearly safe.
On this note, debts actually have priorities. Tax debts are so-called primary debts, which means they have priority and are the first things to be paid off out of a deceased person’s belongings. Yes, even after death, the taxman will always make sure he gets his cut of your life’s efforts before anyone else.
Unpaid credit cards or personal loan debts on the other hand are considered secondary and need to wait until the primary debts are settled. Meaning, they’re the ones who have to hope there’s enough for everyone to go around.
In the same vein mortgages – which, by the way, are called “death pledges” for the fact that the deal dies if the agreed amount is paid or the payment fails – may be saved by life insurance. If not, the property the mortgage is taken on is forfeit and may be sold by the creditors.
The rest of the debt needs to be forgiven – not gladly, one may assume – after all assets have been liquidized.
But is it impossible to pass on debt? To begin with, if you really, really want to – or merely wish for your estates to remain untouched and inheritable – there is a potential way. And yes, at first glance this may seem like the perfect revenge to screw over those ungrateful brats who never visited unless they wanted something, or the spouse who’s been cheating on you for the past thirty years and no doubt had a hand in your death.
In your will, you may name a person further responsible for your debt. If this was put into writing and notarized during your lifetime, there is no escape for that person; creditors can sue them for the rest of your debt.
‘Hah!’, you may think, in that case, how about naming an old rival as your heir? The boss who’s always treated you terribly? Or one of the super rich to whom your measly debts will at the most seem like a singular fruit fly?
Unfortunately for those who want their first act in death to screw someone over, it doesn’t quite work like that. Yes, the person to accept the debt may be named in the will, but you also need that person’s written and notarized agreement that they will take it on in case of your death.
Moving on from there, there are some debts that – no matter how hard you may want it to go differently – will pass on to the remaining family. This is the case for medical bills and nursing home costs. Even if a person dies in surgery, the bills for the operation and the rest of the hospital stay will arrive sooner rather than later. This is obviously not always the case in countries with a different health care system than the US, where going to the hospital for a mild painkiller prescription and a couple of stitches is sure to bankrupt your family regardless.
That said as with other debts, if the deceased’s assets cover the accumulated medical costs, they will be used to pay them up, but if this is not the case, the children will have a hefty debt on their hands that people might come knocking about. This is called ‘filial responsibility’ and is more or less the legal way of proceeding in 30 US states. However, the wording is ambiguous and it doesn’t get enforced in every case.
Additionally, debt may be inherited if someone else is equally responsible for it. This is the case if the loan was taken out under a joint bank account – so your spouse may not be home free after all, even if they are not the one who made the loan agreement – or someone co-signed the debt arrangement. People living together are also not safe from needing to pay off rent array debts, nor do the persons in question get out of a shared bill.
And what about the usually not-so-insignificant costs of the funeral? In short, no one is obliged to pay for a funeral, but the next of kin is allowed to use the deceased’s property before anyone else if it is to pay for funeral costs.
Now all of this comes with the caveat of only applying to the US and the UK. In other countries, the law may vary quite a lot.
Here’s a fun example from Poland. Zuzia, an 11-year-old girl, made headlines and opened room for talk about the controversy about the proceedings in the case of inherited debt. After her father’s death, the debt of a million zloty – which equals about 235,000 euros or 270.000 dollars and was taken out as a loan to expand his construction supplies warehouse – passed to her and was enforced by the bailiff of a debt collection agency, who we hope at least didn’t stoop to directly saying to her, “Give me all your lunch money kid!”
Lawyer Tomasz Parol from the ‘Angeli Iustitia’ foundation said on this topic, “When debt collection agencies around the world acquire claims, they must verify whether they are enforceable. In Poland that’s not the case, since such agencies can get away with more to settle claims.” In 2016, the law was changed to also only having to pay off inherited debts via the estate left.
In South Asian countries such as India or Pakistan, debt may in the past have been taken over by family members, which lead to bonded labour sometimes lasting generations. In India, this system was – at least officially – abolished in 1976 through the ‘Bonded Labor System Act’.
Japan and other countries, such as EU members like Romania meanwhile have the clause of being able to simply renounce your inheritance if debt is higher than the assets. And in theory, this does sound like a good plan; it isn’t too appealing to wholeheartedly accept acquiring debt. However, this means also having to pass up any and all items of sentimental value as only accepting part of the inheritance is impossible.
And if you make a will that leaves, say, the grandfather clock that has been in your family for three generations to your son and your debts to a former friend turned nemesis, that backstabbing bastard can simply renounce the inheritance and the debt passes to your son nonetheless, who then once more stands before the problem of either inheriting debt and assets alike or declining all of it.
Finally, if you ever wondered how ancient civilisations dealt with this matter, well, especially in wealthy societies where much wealth but also much debt could be accumulated, its inheritance was important. If we take Rome as an example, normally the inheritors could choose if they accept the inheritance. Including debts and everything. It is known for example that the emperor Hadrian relieved a person who had accepted an inheritance, and afterwards discovered that it was incumbered with a heavy debt.
Later this was codified so that no misunderstandings occurred, leading to the legislation of Justinian. This legal code freed the heirs, who accepted a “hereditas”, from all the debts and obligations, beyond what the property would satisfy, provided he made out an inventory (inventarium) of the property in a certain form and within a given time to report all assets. If this reminds you of the American system, it’s not by accident…
If you liked this article, you might also enjoy our new popular podcast, The BrainFood Show (iTunes, Spotify, Google Play Music, Feed), as well as:
- Has Anyone Ever Really Inherited Millions from a Random Person They’ve Never Heard Of?
- The Curious Case of the Tree That Owns Itself
- The King’s Law – The Code of Hammurabi
- The “Witch of Wall Street”
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