Are your parents in debt?
Statistics reported by Debt.org show that from the early 1990s onwards, seniors have made up an increasing percentage of people who file for bankruptcy. Medical expenses, job loss and poor investment decisions are among the problems that can leave people in debt; and the recession has cut into many people’s retirement savings.
One of the concerns you may have if you’re inheriting money and various assets from your parents is whether the law also requires you to take on their debt.
Are you on the hook for parental debt?
In general, you can’t personally be held liable for your parents debts. If the debts are enormous, you may get harassed by very aggressive creditors (in which case, you’d need to consult with an attorney on what to do to get them off your back). But in most cases, the only way in which you’ll be affected is that the debts would have to be paid out of your parents’ estate.
Certain assets, such as IRAs, could be exempt from creditors. But if your parents left you their home, for example, creditors might try to seize it. Every asset that creditors successfully claim from the estate means that there’s less for you and any other beneficiaries.
When could you be held responsible?
Sometimes, you may be directly on the hook for parental debt. If you cosigned on any loans with your parents or held any account jointly with them, you’ve likely taken on yourself the obligation to pay off those debts; it’s important to read the fine print of any loan or account you’re a part of.
Another situation to consider is if you’re the executor of your parents’ estate, and you fail to notify creditors and act to pay off the debts using the assets in the estate; in that case, you wouldn’t be living up to your obligations as an executor and might face legal and financial troubles.
Parents and children will hopefully have an honest conversation about any debts that are likely to remain at the time of the parents’ death. Contact us for further advice on how to handle debts as part of your estate planning and discuss possible ways to shield assets from creditors.