I also have some debt out there ... back taxes, student loans, medical bills, etc.... I intend to take care of these matters, but am curious if this will just be taken out of the money that was inherited to me ?
Your father is correct. Your inheritance is not subject to estate tax or income tax (you get to keep all $25,000).
This is not legal advice. This is to be used for educational purposes only.
Family Law Attorney
It is unlikely your creditors can directly take your inheritance. If there are judgments against you, your bank account can be garnished, however.
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Inheritances are not taxable income. The income that inheritances generate (such as interest if it is invested during the time of administration) is be taxable but with $25,000 that would be very unlikely to amount to much.
This is not legal advice nor intended to create an attorney-client relationship. The information provided here is informational in nature only. This attorney may not be licensed in the jurisdiction which you have a question about so the answer could be only general in nature.