What Should I Do About My Parents’ Debt?

Managing your finances is a complicated endeavor with a lot of independently moving parts. You may have children to support, day to day bills to cover, debts to pay off and a retirement to plan. And, to throw even more into the mix, you may come to a point where you need to intervene in your parent’s financial situation.

If your parents are holding a lot of debt, they could be in for some not-so-golden years ahead. While the statistics on the exact amount carried vary by source, having significant debt after age 50, (including mortgage) is incredibly common.

When you couple this with a low savings balance, the result is an underfunded retirement. And that’s for those with any retirement savings at all. For those with all debt and no savings, the situation becomes much worse.

So What Ultimately Happens to A Parent’s Debt?

The good news? In most cases, you won’t be personally liable for debt your parents leave behind when they pass away. However, there are two notable exceptions where you would be personally responsible:

• You cosigned on the debt (note: an authorized credit card user is NOT a cosigner!)
• You are the executor of the estate and fail to follow the probate protocol

It’s therefore critical to think it through before cosigning on any debt and to work closely with your parent’s estate lawyer as you go through the probate process.

Note: You may also want to check your state’s laws regarding your parent’s medical debt, if applicable. Providers may be able to bring suit against you if the estate is unable to cover those bills.

When One Parent Dies

It’s important to note that if your parents are married, and one of the pair dies, the remaining spouse may be legally liable for the other’s debt. If they live in the community property states of AZ, CA, ID, LA, NV, NM, TX, WA or WI, the surviving spouse will most likely be responsible for the deceased spouse’s debt.

Should your parents not reside in one of those states, your remaining parent likely is not responsible for debt incurred in the departed parent’s name only.