What Happens to Your Parent's Finances When They Die

a mother and a daughter conversing in the kitchen
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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. Do not worry; you are not responsible for paying off your parents' debt with your own money when they die. However, their debt may affect how much you inherit from them.

Do Not Pay Your Parents' Debt Once They Die

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 will go to cover the debt first. 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.

Settle Things in Probate Court

Second, if there is not a will, you will have to go to probate court 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 off.

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 have an executor on the will, this will typically be that person's responsibility to deal with this. A lawyer may be able to walk you through the process

Life Insurance May Not Need to Be Used to Pay off 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. It 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. Ask your parents to name beneficiaries on the life insurance to help protect it. 

Talk to Now About the Situation

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.

It 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 about funeral plans at this time. Some people purchase a life insurance policy that will cover burial expenses. Other people pay for their burial expense before they die. Ask what your parents have done so that you are prepared when the time comes. 

Discuss Long-Term Care and End of Life Plans

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 caring and making end-of-life decisions. Do not assume that you will be able to take your parents in and provide full-time care. If you are currently single, you do not know how your partner will feel about it. Additionally, it can be financially devastating if you do not qualify for additional help.

Determine Your Family Responsibilities

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, other 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.