When a parent passes away, the emotional toll can be overwhelming. In addition to dealing with your grief and loss, suddenly you may be managing what amounts to two households: paying your bills while researching and attempting to understand money your parents might owe. Sometimes you might think that you are responsible for your parents’ bills, or honestly you might just want to pay them to reduce the number of headaches you’re dealing with. In most cases, you are not responsible for your parents’ debt. However, if your parents died with assets, those assets will be used to cover any legitimate debts or claims on the estate.
Probate
Probate is the legal process that settles a person’s estate after their death. It involves proving the validity of the will, identifying and inventorying assets, paying off debts, and distributing remaining assets to beneficiaries. During probate, the deceased person’s outstanding debts are typically addressed, which may impact the amount of assets available to be passed on to heirs.
Type of debt
Secured debts. Secured debts are those backed by collateral, such as a house or a car. In the event of the debtor’s death, the asset tied to the debt may be used to satisfy the outstanding amount. If the asset is insufficient to cover the debt, the responsibility for paying the remaining balance typically does not pass onto the heirs.
With a secured debt, the estate often uses funds to keep these loans current until the items can either be sold or the person inheriting the item decides whether to keep it and take over the payments.
Unsecured debts. Unsecured debts, on the other hand, are not tied to any specific collateral. Examples include credit card debts and medical bills. If the estate lacks sufficient funds to cover the debts, they may go unpaid. Even authorized users of a credit card are generally not responsible for paying off the deceased’s credit card debt.
Joint or cosigned debts
You may be responsible for paying off your parents’ debts if you have jointly borrowed money with them. Joint debts are obligations that two or more people share, meaning that all parties are equally liable for repayment. If your parents have a joint debt with you, such as a co-signed loan or a shared credit card, you may be held responsible for the remaining balance should they pass away.
You inherit the family home … and the mortgage
Many times when parents die, the child or children will sell the home and split the proceeds between them. However, if you inherit a home with a mortgage, you will need to keep the mortgage current while you decide to keep or sell the home. Most often, this happens through the estate itself, in that the executor pays the monthly mortgage while the estate is proceeding through probate. But if your parents died penniless with only the house as an asset, you may end up making the payments out of your pocket.
People who incur debts are responsible
The legal framework surrounding parental debts varies from country to country and even within different states or provinces. Generally, though, debts are the responsibility of the person who incurred them, meaning that children are not automatically responsible for their parents’ debts.
In most instances I’m a do-it-yourself person. However, when dealing with an estate, consider hiring a professional to make sure you take all the steps necessary so no one can claim at a later date that the estate owes them money. Plus, after losing a parent, you have enough on your mind. This is one time to share the burden.
Photo by Simon Godfrey