Everyday Cheapskate: Will I Inherit My Parents' Debts?
This week, as I reached into the mailbag, I pulled out two questions, neither of them with easy answers. I was tempted to set them aside and try again, but I decided to tackle both, knowing that my letter-writers are not the only ones facing these kinds of financial situations.
Dear Mary: If my parents are in debt and they die, who pays the bills? I am terrified of inheriting my parents' debts. -- Bethany
Dear Bethany: First, let me be clear that I am not an attorney, so what follows is my opinion. When a person dies, creditors can only look to his or her estate (the assets that person owned upon his or her death) for the payment of debts.
If the debts are shared legally with another person still living, as in the case of a spouse in a community property state, or someone else who can sign on the account, that person may be responsible for part or all of the debt.
Having said that, generally, unless you are a cosigner with your parents on their credit cards and other debts, you could not be held responsible. And their creditors could collect only to the extent your parents left assets in their estates. If they owe $50,000 but die leaving only $10, that's all their creditors could expect to recover.
And now for the bad news. If your parents do leave assets that you will inherit, their creditors get to stand in line ahead of you.
Let's say your parents leave a home, cars, personal property, stocks, bonds or other items of value. The executor of their estate will be required to liquidate or sell them to pay off their debts. Then, if there's anything left, it is distributed to the heirs according to the terms of their wills and/or trust.
So, while you would not have to pay your parents' debts directly to their creditors, what you might have otherwise inherited will be reduced by what they left owing.
Contact the Consumer Protection Division, office of attorney general in your state's capital to find out the specific laws governing your state.
Dear Mary: Our 25-year-old son is moving home (after five years of being on his own) with few possessions and an unbelievable amount of debt.