Tuesday, April 2, 2019

Are You Responsible for Your Parents’ Debt?

The baby boomers–that big, bold generation that marched, protested, innovated and made things happen–are leaving another legacy. That of debt. The boomers, unlike their frugal parents before them, have not done a very good job of preparing for retirement. The number of senior households with debt increased from about 44% in 1989 to more than 61% in 2013, according to the Federal Reserve Board’s Survey of Consumer Finances. The median debt in households headed by people 60 or older rose from $9,038 in 1989 to $40,900 in 2013. Children of these baby boomers find themselves asking “are we responsible for our parents’ debt?”

Many seniors will die with their debts still unpaid

If you don’t have any assets, your debts will typically die with you. “In most cases, your debt belongs to you, and it isn’t passed to anybody else,” says Lisa LaMarche, president and co-founder of Milestone Wealth Advisors in Greenville, Delaware. “It doesn’t go to your children.”

If you have assets, expect creditors to be the first in line to get paid

If you have any assets at all, your creditors go to the front of the line to get paid from the proceeds of your assets during the settlement of your estate. In essence, your heirs will end up paying your debts because your creditors will be paid first—before any inheritance is transferred. If you die with credit card debt or an outstanding mortgage, they will have to be paid off if your heirs want to keep the home. If there’s additional debt, the house likely will have to be sold to pay those debts.

In community property states such as California, a spouse is responsible for debt incurred during the marriage.

Things to do if someone you love dies with debt:

If there’s no Living Trust or if there’s a Will, you will need to go through Probate.
  • Get professional help. California Document Preparers can help you. Bring a Living Trust or Will if they exist. If not, you will need to go through Probate, and we can assist you. While it may sound overwhelming, it is actually a very straightforward process, and we guide you through every step.
  • Cancel credit cards. If you’re handling a deceased loved one’s affairs, you should cancel credit cards immediately. This freezes the account and keeps any additional charges from being made. Creditors will need to make official claims for repayment with the estate. You will probably need multiple copies of the death certificate, and some creditors will require official copies. In California, children are not required to pay their parents’ credit-card debt.
  • Inventory your loved one’s assets.You can hope that your father, mother or spouse left everything in good financial order, which will allow you to easily locate brokerage, bank and credit card accounts and mortgage documents.

There’s a good possibility, however, that this is not the case

When my own parents were getting close to the end of their lives, my brother and I stepped in. While they had a Living Trust, it hadn’t been updated in 20 years, and they had made some good investments over the course of that time. When we asked about current financial documents, my stepfather opened a cupboard and a huge mass of documents literally spilled out onto the floor We spent hours trying to get a clear financial picture. Our most immediate priority was updating their Trust while they were still able to legally sign documents.
  • Determine what your loved one owes. Ask credit-card companies and other creditors for statements showing outstanding balances. This will help determine what is owed and what you’ll need to sell to pay the debt.
  • Have beneficiaries file for assets that pass without Probate.Retirement accounts, life insurance and some other assets are not considered part of the estate. They pass directly to the designated beneficiaries. These beneficiaries can start filing immediately after the death.

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