When your parents die with debt

At any age, the death of a parent is a difficult experience. But these days more adult children are dealing with an added stressor: the realization that Mom or Dad died with debt.
In the past decade, there’s been a steep increase in debt among senior households. According to a report from the Employee Benefit Research Institute, half (49.8 percent) of families age 75 and older have debt, averaging $36,757.

Most senior debt is tied to housing expenses, but auto loans, medical bills, credit cards and student loans also factor in. If you think your parent may die with debt, here are some things to remember:

You’re not usually on the hook. When people die, their debts are typically owed by their estate. When the estate doesn’t have enough assets to cover all the debt, those bills usually remain unpaid and creditors have to eat the loss.

Your parent’s executor will need to sell estate assets to satisfy any debt, but if there are still bills left over, you probably won’t have to pay them out of your own pocket. State rules vary, however, and roughly 30 states have (rarely enforced) “filial responsibility” laws under which you could be held responsible for a parent’s unpaid medical bills.

Certain assets are protected. If you inherit certain protected assets, such as a life insurance policy or retirement benefits directly (i.e., you’re named as the beneficiary and benefits don’t pass through the estate), you don’t have to use those funds to pay your parent’s debt. You may keep those assets without obligation.

That doesn’t mean the collection agencies will just leave you alone. Debt collectors are good at playing on people’s emotions and may lay on the guilt, claiming you have a moral obligation to cover your parent’s unpaid bills. Keep detailed notes of every debt collection call and think carefully before you agree to take on any responsibility.

Consult a lawyer. It’s a good idea to consult a lawyer, particularly if your parent transferred assets to your name or made any other moves to protect his or her estate from creditors. A lawyer can ensure you’re following state law and can help you understand which debts get paid first out of the estate and which come last.

Even if your parent died without assets, a lawyer can provide advice on the best way to deal with creditors. It may be as simple as sending out letters to creditors and closing the estate. Because the cost of administering an estate is considered a high-priority debt, you can pay for an advisor out of the estate’s assets before paying other bills.