Many of us have a difficult time coming to terms with the end of life. Specifically, losing one or both parents is exceptionally hard to work through. Especially when grieving the loss of their physical presence is overshadowed by the stress of managing what they left behind.
Their financial obligations, for example, can be extremely stressful to manage. Primarily, the unwelcome surprise of excess debt. It leaves most adult children anxious about whether or not they’ll inherit their parent’s debt and what their options are if all the debt can’t be paid.
But this article is here to help relieve a bit of stress and provide some guidance on which debts can be inherited from parents after they pass and which can’t.
There will also be some tips at the bottom your parents’ can implement today to mitigate the stress that may fall on you as you navigate their financial landscape after they pass on.
You Can Inherit: Debt Accumulated in a Joint Account
The first kind of debt you can inherit from your parents is any debt accumulated in a joint account. Parents and children get joint accounts for various reasons.
Those reasons include:
- Needing an account to pay bills out of if they live together
- Saving for a particular event or reason
- One needs help managing finances
- One can’t get a bank account on their own
Whatever the reason for the joint account, if it has debt after a parent passes, you’re responsible.
For example, if overdraft fees accumulated in the account and there is a negative balance because of them, you’re responsible for settling this debt.
Likewise, if a bounced check gets returned to the account for insufficient funds and creates a negative balance, you are responsible for that.
If your name is on the account, you’re essentially responsible for anything that goes on in the account. Even if a now-deceased parent did the action that caused the debt.
You Can Inherit: Debt From Loans You Cosigned On
The second kind of debt you can inherit when your parents pass away is any debt from outstanding loans you were a cosigner on.
Loans you may cosign on with your parents include:
- Car loans
- Business loans
- Home loans
- Personal loans
- Title loans
- Student loans
This circumstance is similar to the joint account debt. If there is an outstanding balance on a loan that you cosigned on for your parents, your responsible for resolving this debt if it’s not paid off before they pass on.
Now, let’s take a look at two kinds of debt that cannot be passed down to you once your parents pass away.
You Cannot Inherit: Their Credit Card Debt
If your parent’s carried significant credit card balances and did not pay them off before passing on, it’s not your responsibility to pay them.
Your parents’ estate pays credit card debt. This means that any money received from selling their home, cars, and other valuables will be put towards any remaining debt.
You Cannot Inherit: Their Mortgage Loan
The second kind of debt you cannot inherit from your parents once they pass on is their mortgage loan. So long as you're not a cosigner on this loan, the estate will be responsible for settling this debt as well.
If your parent’s estate doesn’t have sufficient funds, it will be deemed insolvent. The bank can then retrieve the property back and write off the remainder of the loan. But if you want to keep the house, you’ll need to assume the payments yourself.
More Helpful Information Regarding Inheriting Your Parent’s Debt
Fortunately, most of us won’t have to worry about inheriting any debt from our parents when they pass away. But let’s say you are on the hook for one of the debts above that can be inherited and are overwhelmed with how much is owed. Sit down with a representative at the institution carrying the debt.
Talk with them about any repayment options available to you that are more affordable. Unfortunately, there usually aren’t any specific extenuating circumstances you can claim to prevent you from taking on this debt or any avenues to forego inherited debt like this.
Still, it never hurts to share your circumstances with them to see if you can work something out.
Also, your parents can help prevent you from having to take on any joint debt or mitigate the stress of navigating an unorderly financial situation.
First, help them plan for retirement to remain financially stable. Many seniors are retiring with significant debt. So, it’s best to put a plan in place right now for how your parents plan to live in retirement, what their financial options are, and their plans for continuing to pay off debt until they pass.
Then, enlist the help of a financial planner or another financial expert to help your parents thoroughly prepare for retirement.
Next, if you want to prepare for a situation where their debt may outweigh their assets, start improving some of their assets now to make for a better sale later on.
For example, look into ways you can improve their home. But don’t go into more debt trying to make these home improvements.
Instead, only consider renovations that add maximum value to the property. Improving the curb appeal with affordable updates like painting the front door, updating house numbers, or power washing the home and driveway will only add to the value of your parents’ home.
Also, encourage your parents to still strive for their financial goals even if they’re currently in debt.
Help them make a budget they can stick to and check in with them on their progress each quarter. By minimizing debt now and striving to reach their financial goals, your parents are putting you in a better position once they pass on.
Ultimately, in nearly all circumstances, you won’t be responsible for settling your parents’ debt after they pass on. Implement the tips above to eliminate the stress of managing their finances when the time comes.
Josh founded Money Buffalo in 2015 to help people get out of debt and make smart financial decisions. He is currently a full-time personal finance writer with work featured in Forbes Advisor, Fox Business, and Credible.