The Surprise Inheritance You Didn't Want — What Happens When You Inherit Debt?
When people hear the word “inheritance,” they picture money, property, or treasured family items. But what if instead of wealth, you’re left with debts? This post unpacks what happens if you inherit a property with a mortgage, a business in debt, or personal loans tied to someone else’s estate. We’ll guide you through the rules, what debts you may or may not be responsible for, and how you can protect yourself.
The Inheritance Nobody Talks About
We usually think of an inheritance as a blessing. Something passed down to support the next generation. But in reality, not every inheritance comes wrapped in financial comfort. Sometimes, what you “inherit” is stress in the form of unpaid loans, mortgages, or debts tied to the estate.
This kind of surprise can feel unfair and overwhelming. Imagine expecting a home, but learning it carries a hefty mortgage. Or finding out a family business you’ve inherited is drowning in unpaid bills. These are very real situations people face in Victoria, and it’s important to know what the law says about them.
Do You Personally Inherit Debt?
Here’s the good news: you don’t personally inherit someone’s debts just because you’re their child, spouse, or beneficiary. Debts are generally paid from the estate first. That means before assets are distributed to beneficiaries, the executor uses estate funds to settle outstanding loans, mortgages, and other liabilities.
However, there are exceptions that catch people by surprise:
Mortgages on inherited property: If you inherit a house with an existing mortgage, the mortgage doesn’t magically disappear. You can choose to sell the property to pay off the loan, or keep it—but then you take on the responsibility of servicing the mortgage. The exact wording of the Will determines if you get the property free of the loan or not, so it is important that the Will is drafted by a lawyer to avoid confusion.
Business debts: If you inherit a business, its debts may follow. While you won’t be personally liable for unsecured debts, you may need to deal with creditors, restructure, or wind up the business.
Personal loans or guarantees: If the deceased guaranteed someone else’s loan, the estate might still be liable. And if you jointly held a loan with them, you may become fully responsible for repayment. When someone sues for a debt they usually head for the easiest target, and that may be you!
Protecting Yourself From a Debt-Laden Inheritance
Finding yourself in this position can feel like inheriting a ticking time bomb. But there are steps you can take:
Ask questions early – Executors should give you a clear picture of estate assets and liabilities.
Get legal advice – Every situation is different, especially if property or businesses are involved.
Consider disclaiming the inheritance – In some cases, you can refuse to accept an inheritance if it would cause more harm than good. This may be the case where you are on Centrelink.
Plan your own estate carefully – Knowing how stressful debt can be, you may want to structure your own Will to avoid passing on a financial burden.
Inheritance isn’t always about gifts—it can sometimes mean responsibility, complexity, and hard choices. The important thing to remember is that you are not automatically stuck with someone else’s debt, but you do need to navigate the fine print around property, businesses, and loans.
We’ve covered three key points:
Debts are paid from the estate first, not directly by beneficiaries.
Mortgages and business liabilities can still impact what you inherit.
You can protect yourself with clear information, legal advice, and even the option to disclaim an inheritance.
Think about this: if you were faced with an inheritance tomorrow, would you know what questions to ask? Take one strategy from this post—whether it’s “ask early” or “get advice”—and keep it in mind. If you’ve ever experienced a tricky inheritance, share your story or strategy in the comments.
DISCLAIMER
This commentary is published by HazeLegal for general information only—it’s not legal advice. If you have questions or need advice for your specific situation, we recommend speaking to a lawyer or reaching out to us at http://hazelegal.com.au before making any decisions.
HazeLegal works closely with our sister company, WebWills, to bring you these resources.
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