A parent’s debts could outlive them making you wonder who’s responsible for paying the bills. Adult children might be responsible for some of the debts and/or the amount they inherit could be reduced under certain circumstances because of a parent’s debt.
A person’s debt doesn’t die just because they died. Creditors can file claims against the estate, and those claims usually have to be paid before any money is distributed to the heirs. Back when newspapers were printed, you may have seen an Executor notice or Estate notice to creditors.
A notice to creditors is a formal, often legal, publication during probate that alerts potential creditors to a deceased person’s death and initiates a deadline (commonly 90 days to 4 months) for them to file claims for unpaid debts. It acts as a legal shield, protecting the executor and the estate from future claims, and is typically published in a local newspaper. This is one of the items on The Guardian’s Gift Executor Checklist.
When is a family member legally bound to pay the deceased debts?
- A co-signed loan. Whoever signed for the loan or agreed to be responsible for the debt remains responsible to pay the debt.
- A surviving spouse that lived with their partner in a state that recognizes community property and debt is part of the community property.
- Executors and Executrix are legally responsible for settling the estate and paying the bills before distributing any assets to the heirs.
Sometimes a person dies with more debts than assets. When that happens, the estate is said to be “insolvent” and typically state laws determine who gets paid, how, and when. There are lots of legal rules about how this works and not being an attorney, I won’t attempt to describe that here. Just know, assets go to pay bills first before inheritance.
One debt issue that causes confusion for some people has to do with Medicaid. If Medicaid paid for the nursing home expenses, the state can file a claim against the estate or place a lien against the person’s home. Some people mistakenly believe that Medicare will pay for a nursing home stay. . . they don’t!
Medicare and Medicaid are two different animals and that discussion is for another blog all its own. Medicaid is the resource used to cover nursing home expenses and there are specific rules and regulations that apply when Medicaid is used. The bottom line is that the state expects to be repaid and to recover the money used to pay for the nursing home.
Unsecured debt like credit cards or personal loans must also be paid before any heirs get anything. Even if there isn’t enough to pay all the creditors fully, they split up what’s left. Then, if there’s anything remaining, assets are distributed to the heirs.
Sadly, debt collectors and or agencies are allowed to call and ask for payment. They are not allowed to threaten or say the survivors are legally responsible to repay the debt. As we all know, there are some unscrupulous folks out there who don’t follow the law.
It’s always best to know the rules and laws around issues your family could potentially face due to an aging family member. At The Guardian’s Gift we often hear people make statements we know to be false and or potentially problematic for all concerned.
We are not attorneys! However, we believe that upfront pre-planning actions can reduce or eliminate major problems for loved ones later. We work with attorneys, financial planners, funeral services, religious communities and any other resource we believe will help our clients. We may not know the answer, but we will find it for you.
