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Death and Debt: can I inherit money owed?

An unfortunate reality in today's Canadian society is the prevalence of debt. We want to own houses, cars, and justify credit card expenditures in the name of a quality lifestyle. Debt accumulates slowly but easily and we intend to one day pay it back, but what happens to that debt if we die unexpectedly?

If a person dies owing money, assets from their estate such as properties, vehicles, or other valuables have to be sold to pay off those debts before descendants can inherit. This at least means that the survivors don't have to pay the debts with their own money, and can't be held liable for poor financial decisions made by relatives. Of course, there is still a problem, as people would want to leave an entire estate to their heirs instead of one drastically diminished to pay off debts. In an expensive city like Vancouver, many people rely on their inheritance to fund retirement or to buy a house, and if debt takes a large chunk out of those funds it can put heirs in a very difficult financial situation.

A further concern is with what happens if the debt is not adequately covered by the value of the estate. It seems logical that if one could inherit money, one could also inherit debt. However, this is not the case in Canada, and creditors cannot ask for more money than is in the estate, meaning they generally have to write off what the estate cannot pay back. While one might inherit nothing, there is at least the comfort of not inheriting debt.

While it is not possible to inherit debt that was the responsibility of the deceased, there is another way to be liable; co-signing an agreement with someone. It is not uncommon for people to co-sign loans and mortgages for family members, apartment leases with friends, or credit cards for children. Imagine a situation where you co-sign a credit card agreement for a family member who turns out to have questionable spending habits. Should they die suddenly, then you would be accountable for their debt.

Unless you have signed an agreement actively taking on shared responsibility for a loan, then you cannot inherit debt. While this is reassuring, it is still a smart idea to plan out wills and finances ahead of when they might be needed.

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