If you're lucky enough to receive an inheritance, the property you receive becomes yours and can be used by you in any way you see fit. Estates -- the property a person leaves behind after death -- are subject to various laws and taxes that affect how an inheritance is determined and distributed to beneficiaries. In general, if you receive an inheritance, your creditors are allowed to try to collect it to satisfy a debt, just as they can with any other asset.
Inheritances and Taxes
If you inherit property, you may be required to pay an inheritance tax, which you must pay after receiving any inherited property. This is different from an estate tax, which is charged upfront on the estate and must be paid before property is given to heirs. In general, a state can file a tax lien against the estate to ensure that any inheritance taxes get paid before the estate is closed.
If you owe debts, your creditors may use the property you inherit to pay off those debts, although in only certain circumstances. For example, if you have credit card debts, your creditors cannot simply take your property. The credit card company must sue you and win in court before it can levy your bank accounts or garnish your wages. If you received an inheritance in the interim, your creditors may be able to take the inheritance to satisfy the debt.
If, for example, you inherit a home and later use that home as collateral for a secured loan, your creditors can foreclose on the home if you fail to pay back your debt. Also, if you enter into a secured-loan agreement with the home, your creditors have the same right to foreclose, regardless of the property's inheritance status. Receiving the home as an inheritance has no effect on subsequent loans to which you agree.
Many people wonder what happens to a debt after the owner dies. In general, you cannot inherit debt. For example, if your parents die with credit card debts, you are not responsible for paying those debts. Your parent's estate is responsible for paying all debts before distributing the remaining estate property to heirs and beneficiaries. You may be able to assume a mortgage after the original mortgage holder dies, but you cannot be forced to do so.