Am I Responsible for My Parents’ Debt When They Die?

As parents age, a number of financial concerns often arise, such as long-term health care, assisted living facilities, and planning for life after they pass. Especially if your parents have significant bills, you might be wondering: Am I responsible for my parents’ debt after they pass away?

In a word, no. (Most of the time!)

Generally, children are not responsible for debts like car loans, mortgage, or credit card debt. However, if an estate goes through probate, debts are paid from what’s included in estate. This may be an issue to watch out for.

Debts of the deceased are settled by the estate

When a loved one dies, their assets and debts get lumped together into their estate. Their estate may go through what’s called probate, a court process that determines what happens to the assets in the deceased’s estate. Probate will often ensure that assets are used to pay debts before any leftover funds are given to heirs.

For example, if a person owes $300,000 but has only $150,000 in probate assets, some creditors may not be fully compensated. There is an order of priority when pay debts from an estate. Secured creditors, such as mortgage lenders and automobile loans must divide the probate assets among themselves, whereas unsecured debts, like credit card balances, could be forgiven after contacting the credit card company.

However, encourage your parents to review their estate plan with an attorney to help ensure their assets are passed down free and clear without being subject to probate.

3 Exceptions when you might be responsible for your parents’ debts

However, there are exceptions to this. There are some instances in which you may be responsible for your parent’s debt, such as:

You cosign a loan with your parents

When you cosign a loan, the debt is in your name. You are liable for it even if the other name(s) on it have passed away. If you cosign a loan, you are responsible for that full debt. For example, if your parents were to get a second mortgage but didn’t have the income, and you cosigned, then that would become your debt. This same principle applies for cars, credit cards, and other loans.

You inherited a property with a mortgage

If your parents leave you a house with a mortgage and you would like to keep the house in your name, you are responsible assuming the mortgage payments. Otherwise, the house may be sold to pay off the mortgage, and if there are funds left over, they would go to the heirs according to the will or probate. These options are also available on a reverse mortgage. Heirs can also choose to do nothing and let the house be foreclosed upon.

You live in a state with filial responsibility

In some states, laws known as filial responsibility laws may require adult children to pay for certain debts (usually related to medical or long-term care.) Filial responsibility does not exist at the federal level.

How to avoid being surprised by your parents’ debts when they die

Unplanned debt can throw a wrench in your financial plan, so it’s important to eliminate surprises where you can. Here’s how:

Be involved in your parents’ estate plans

Talk to your parents about their estate plan. Know who the executor is and what assets they include in their plan. Make sure they keep their plan updated. If they don’t have one, encourage them to meet with an estate planning attorney or give them a list of resources to utilize.

Regularly review your parents’ beneficiary designations

If an estate passes through probate, certain creditors are paid out from the value of assets subject to probate: items like the house, the car, and the checking account.

However, assets that can be passed down to a named beneficiary generally cannot be subjected to creditors. These include life insurance policies, annuities and retirement accounts, like IRAs and 401(k)s. Most importantly, your parents must actively name you or someone else as the beneficiary for the asset to avoid probate. A local estate planning attorney or financial planner can also help advise on this.

In some cases, situations may arise when someone leaves money in an IRA to their spouse, and the surviving spouse may not designate a beneficiary before their own passing. As a result, the IRA becomes a part of their estate and is subject to creditors during probate.

Beware of shared or joint accounts

You also want to avoid any moves that inadvertently make additional assets part of probate — or leave responsible for the debt. People typically encounter this issue when cosigning a loan or adding a parent to a checking account.

While it might seem harmless to add Mom or Dad to your checking or savings account for efficiency, doing so could make that account subject to the creditors of the other owner. Although it might be “your” $50,000 in checking, it could be used to pay any outstanding debt from your parents. Nonetheless, joint accounts with a right of survivorship are typically not subject it probate, which his common for many joint accounts.

Remember, the good news is that you are generally not responsible for your parents' debt. However, it is important to take the time to ensure that they’ve set up their beneficiaries and that you are not accidentally liable by cosigning loans or shared accounts.

Other considerations when dealing with your parents’ debt

While managing debt can feel complicated, the right professionals can guide you through the process. Your Northwestern Mutual advisor can partner with you and your parents to ask the right questions and uncover what truly matters to each of you. Together, you can build a financial plan that helps you reach your goals and plans for any curve balls life throws your way.

Financial Representatives do not render legal advice. Consult with a legal professional for legal advice that is specific to your situation.