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Heirs Wonder: “When My Parents Die in Debt, Am I On the Hook?”

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The statistics are sobering: more and more seniors are entering retirement burdened with debt.  As a result, many of these aging Americans are literally dying broke, with little of their financial lives remaining but unpaid bills. That means a growing number of adult children are suddenly becoming heirs to an estate ladened with debt, and they’re asking themselves and their financial advisors – “Am I on the hook? Have all those debts become my problem?”

Because we encounter this exact situation frequently in our practice at AgingOptions, we were drawn to this helpful article that appeared last week on the USNews website. It’s called “When Your Parents Die Broke,” and the subtitle sets the stage pretty clearly.  “More seniors are carrying debt such as mortgages and credit card balances into retirement and they have fewer assets,” the article says. The implied question is, “What happens when they pass away?”

The article was written by financial columnist Liz Preston, and we think it’s a must-read for just about anyone who feels they may be likely to inherit a financial disaster when their mom or dad dies.  That’s what happened to one man Preston profiles, a man named John Schmoll. His father “left a financial mess when he died: a house that was worth far less than the mortgage [and] credit card bills in excess of $20,000.”  But worst of all were the debt collectors: these aggressive sharks insisted that Schmoll was legally obligated to pay the debts his father left behind.

“Fortunately,” Preston writes, “Schmoll knew better.” He had spent 20 years working in finance as a stockbroker and financial writer, and he knew he was not legally liable for any of his father’s indebtedness.  But this caused us to ask ourselves, how many other heirs are far less informed and fall prey to aggressive debt collectors out of fear and ignorance?

Preston’s USNews article paints the picture in bleak terms.  “Baby boomers are expected to transfer trillions to their heirs in coming years,” she writes. “But many people will inherit little more than a pile of bills.”  That’s because nearly half of seniors will pass away with financial assets worth less than $10,000, according to a 2012 study for the National Bureau of Economic Research. “Meanwhile, debt among older Americans is soaring,” says Preston.  The number of people 75 and older who have a mortgage has shot up 400 percent since 1989, now numbering nearly one-quarter of all older adults.  Slightly more, 26 percent, have credit card debt, according to 2016 stats from the Federal Reserve. This means you as an heir have a significant chance of “inheriting” debt when your parents pass away. So, says Liz Preston, here are four things you need to know.

First, the good news is that you probably aren’t responsible for your parents’ debts. “When people die,” says Preston, “their debts don’t disappear. Those debts are now owed by their estates.” But if the estate lacks the assets to pay all of the bills, some of those bills are simply going to remain unpaid.  It’s true that a spouse may bear some liability, depending on state law, but unless the non-spouse heir is also a co-signor on the debt, they usually owe nothing. Even inherited assets such as “pay on death” bank accounts, life insurance policies, retirement plans and the like are protected from creditors.

Second, you definitely need to consult a lawyer. “After a parent dies,” the USNews article explains, “the executor must follow state law in determining how limited funds are distributed and can be held personally responsible for mistakes. That makes consulting a lawyer a smart idea.” Typically any legal fees incurred will be covered by the estate, not by the heirs. The cost of good legal counsel will be money well spent when it comes to determining what debts the estate owes and how best to satisfy those obligations.

Third, advises Preston, you need to take meticulous notes. “The financial lives of people in debt are often chaotic,” says Preston, “and sorting it all out can take time.” John Schmoll, the man featured in the article, serves as a helpful example. As executor of his dad’s estate, “Schmoll dealt with over a dozen collection agencies, utilities and lenders, often talking to multiple people about a single account. He kept a document where he tracked details such as the names of people he talked to, dates and times of the conversations, what was said and required follow-up actions as well as reference numbers for various accounts.” As tedious as in sounds, this kind of record-keeping will prove invaluable in getting debts handled properly.

Fourth, you need to stop listening to the debt collectors. These individuals are relentless, and they will often resort to trickery, exaggeration and high pressure. Preston’s advice is not to give in to their efforts, but instead to know your options and know when to hang up the phone or ignore the collection letters. Don’t allow the debt collectors to play on your emotions or make you feel guilty.

Here at AgingOptions our passionate pursuit is to help retirees avoid becoming a burden to those they love. If you’re worried about how to protect your assets when you retire, it’s time for you to discover the power of an AgingOptions LifePlan. Similarly, if you’re serving as a financial advisor to an aging parent, you probably find yourself needing some good, solid, objective advice, and a LifePlan can be the solution for you, too. Only an AgingOptions LifePlan helps you plan for your future by blending all aspects of living into one seamless plan – encompassing financial, legal, housing, medical and family dimensions. Wherever you are in your life, now is a terrific time to join Rajiv Nagaich and find out for yourself at a free LifePlanning Seminar. It will be one of the most important information sessions you’ll ever attend.

For a complete listing of currently scheduled seminars, click on this link to our Live Events page. You can register online for the seminar of your choice, or contact us during the week. It will be our pleasure to help guide you into the fruitful and secure retirement you’ve always hoped for! We’ll see you soon.

(originally reported at

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