Can you inherit debt?
With many Canadians now carrying debt into retirement, longer life expectancies, and projections for increased living and healthcare costs, it is not hard to imagine that many Canadians will die leaving behind significant debts.
One of the common misconceptions about debt after death is that a surviving spouse or child may inherit or otherwise become responsible for the deceased person’s debt. However, when someone dies, can you inherit their debts? The short answer is no – not unless you were jointly liable for the debt, a guarantor of the debt, or otherwise previously accepted responsibility for the debt.
Debts that are the sole liability of a deceased do not transfer by virtue of death. However, debts are, of course, not extinguished upon death – they remain outstanding and must be dealt with by the deceased person’s estate. Any unpaid debts of the deceased, in addition to the expenses and liabilities of the estate (e.g. funeral expenses, taxes, legal fees, etc.), are a first charge on the assets of the estate. All of these liabilities need to be paid before the estate can be distributed to beneficiaries. An estate trustee has the obligation to identify all liabilities of the estate and pay them from estate assets, to the extent possible.
If the estate’s assets are insufficient to pay the outstanding debts of the estate, the estate may be insolvent. The estate trustee and relatives of the deceased do not become personally liable for the deceased’s debts, and are not liable to creditors or debt collectors even in the circumstances of an insolvent estate.
For more information about insolvent estates and the priority of the claims of creditors in such circumstances, please refer to Ian Hull’s paper entitled Issues Involving Insolvent Estates.
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