Am I Responsible for My Parents' Debt When They Die?

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It can be difficult to deal with your parents passing away, and you may find yourself struggling to make funeral arrangements and to manage everything else. It can be even more complicated if your parents did not have a will and if they are in a lot of debt. You may be wondering what will happen and what you can do to deal with it.

First, you need to realize that you are not responsible for your parents’ debts as long as you did not cosign on the loan with them.

Their debts will be covered by their estate, which means any money they have in the bank, and any money that the sell of the house or cars brings in. The credit companies will write off the remaining debt. Additionally, you shouldn't borrow money for them to help them out of a difficult situation.

Second, if there is not a will, you will have to go to probate court in order to have everything settled. This can take some time. While this is happening, you can contact your parents’ creditors and furnish the companies a copy of the death certificate. This should stop any collection calls and possible foreclosure on the home until the estate is settled and the debt is paid out. If the collection companies begin calling you about paying off the debt, you can tell them you are not responsible for the debt since you were not a cosigner on the loan. You cannot inherit your parents’ debt.

If your parents had life insurance and you are a designated beneficiary, you do not need to use that money to pay off their debts.

This is your money or your inheritance, and it does not need to be used to settle the estate. However, if there is no designated beneficiary on the life insurance policy, it becomes part of the estate and must be used to settle the debts before you can have access to any of the money.

Although it can be a difficult conversation to have, it is important to talk to your parents about what they have set up.

You can ask them to type up a list of accounts, both savings and loan accounts, as well as a list of life insurance policies and then agree on a safe place for them to keep the list. This can make sorting through everything easier when the time comes or if you need to help your parents financially.

You may also want to talk to your parents about their plans for extended care and what they want to have happen if they can no longer live alone. A few frank discussions can help everyone prepare for when the needs arise. The best time for your parents to purchase long-term care insurance is in their early fifties, so having the discussion now can make everything easier. It can also allow you to adjust to each other’s expectations when it comes to care and making end-of-life decisions.

When you are in your twenties, your parents may still be very active and working. You may not even think about many of these decisions because you expect them to continue to do well for several more years. However, sometimes the unexpected does happen or your mother or father may receive a serious diagnosis such as cancer. It can help to have these discussions before the stress of these situations is affecting decisions.

Once you have had the discussion, it is important to realize that the situation may change as you get married or your parents’ needs change. You may also need to talk about caring for younger siblings and your responsibilities and their expectations. It is still better to have an overall plan in place so when you do get to the point where you need to help care for your parents you are ready, whether it is now or in twenty more years.