The average American has over $200,000 in debt, including credit cards, mortgages, and student loans. Most individuals will not have enough to cover both funeral expenses, probate and their outstanding debt, even with life insurance.
Creditors typically have a fixed period of time during probate proceedings after your parent dies, usually between two and six months — to make claims against the estate of your parent. If there is money or other assets, before anything is distributed to heirs, they must be used to pay off the debt. If there is no resources or assets to cover the debts, however, the debts will perish with deceased debts.
Even if you’re not legally responsible for paying the debts, what your parent intended to leave you may still decrease — or wipe out. An executor, for instance, may need to sell some of the assets of an estate to satisfy the claims of creditors. Even if a 401(k) or IRA is prepared by your parents, it will only be protected from its creditors if it lists you in the account itself as a beneficiary. The money will be rolled into the estate if you are not listed as a beneficiary, and creditors can make claims against it.
Does children inherit their parent’s credit card debts?
Your children can not be forced to pay credit cards debts. These debts however can be collected from your estate, reducing the amount of inheritance you are leaving your children.
Be advised, creditors sometimes try to convince adult children that they are liable to pay the credit card debt of their deceased parent. The law does not allow them, in an effort to recover these debts, contact children of a decedent, (except in situations where the child is still the executor of the estate), but some will still try to do so. You should get acquainted with the laws that covers unpaid credit card debt in order to protect yourself from creditor’s excesses.
Does Medical debts from parent affect children?
Legislation on medical debt varies greatly from state to state. In certain jurisdictions, for example, if a parent dies with unpaid hospital bills, any assets found in the estate must cover them but not the responsibility of children. Nearly 30 states, however, have enacted legislation requiring children to pay a portion of the unpaid medical bills of their parents if the estate has insufficient funds.
If your parent received Medicaid, an insurance policy for those who cannot afford coverage, the state where your parent died will recover the payments made from the age of 55 until the death of your parent.
The only significant asset an individual can maintain and still qualify for Medicaid is a home. So to recover payments, the state will put a lien on your parent’s house. If you or an adult sibling stayed in your parent’s home for at least two years until his or her death and offered treatment that postponed your parent’s admission to a nursing home or other medical facility, the state is therefore barred from collecting. If your parent wasn’t on Medicaid, but died with unpaid bills from the hospital or doctor, the estate is responsible for paying them.
Inheriting a mortgage home is a very complicated problem. However, speak to an estate lawyer who’s familiar with all the state and federal legislation that regulates the matter. Generally, if you inherit the home of your parent and still have a mortgage on it, the lender will not expect you to pay off the mortgage immediately. In other terms, the bank is unable to call the loan. However, you’re going to be liable for making payments on it.
In conclusion, your children won’t have to pay your debts, but they could see their inheritance diminishing as creditors deplete your assets to cover your debts. Again, the regulation on the effect of parental debt on inheritance is complex.
For example, your pension or IRA could be tapped by creditors to cover debts that could decrease the amount of inheritance your children receive; however, you may prevent this by listing one or more of your children as beneficiaries of your pension.