When your parents die broke

By Liz Pulliam Weston

Trillions of dollars will be inherited by baby boomers and their progeny over the next 50 years.

But rising debt, spiraling medical costs and inadequate retirement savings mean that not everyone will share in the bounty. Some, like Your Money message board poster FrazzledMom, will see their parents die broke. Instead of inheriting wealth, they may inherit bills.

"When my mother died, she had about $100 in the bank, $5,000 in debt, hospital bills and a small whole-life insurance policy that had been borrowed against and was practically worthless," FrazzledMom wrote. "I paid for most of her funeral."

Survivors typically aren't responsible for their parents' debts. But they may still have to deal with aggressive collection agencies and the expense of settling the estate. They may have to scramble to take care of a surviving parent or even dependent children. The family home and other assets may have to be sold.

And somebody's got to pay for the burial. Your Money poster rcrow has helped pay for two so far:

"My stepdad died and left my mother with bills and no life insurance. . . . Then my mother died three years later and left one minor child and bills . . . and no life insurance," rcrow wrote. "My sister and I paid monthly payments until my mother's funeral bill was paid off -- over $5,000!!"

Dying broke isn't that uncommon. If your parents are among the poorer crowd, you need to know:

• Your responsibilities when your parents die broke.
• How insolvent estates are settled and how to deal with creditors.
• What you can do now to ease the burden later.

Read on for some practical advice.

What you owe when your parents go

Children aren't on the hook for their parents' unsecured debts -- credit cards, personal loans, medical bills -- unless they had agreed to take on the responsibility, said attorney Denis Clifford, a co-author of the Nolo Press book "Plan Your Estate." You'll typically share liability for a debt if:

• You were a co-signer on a loan. Co-signers are just as responsible for paying off a loan as the primary borrower.

• You're a joint (not an authorized) account holder. If your income and credit history were used to get the loan or credit card, you're generally responsible for paying it off. If you were only an authorized user of a credit card, you're not.

• You abused a power of attorney or conservatorship. If you had responsibility for your parents' finances and spent their money on yourself, you're responsible for paying it back.

A growing and lucrative market for old debt has led some collection agencies to pursue credit card bills even after an insolvent person dies.

One of my readers told me a collection agency insisted he had a "moral obligation" to repay his father's debts. If this happens to you, take a moment to savor the irony of being lectured about morals by a clearly unethical collector. Then hang up.

Secured debts -- loans that are attached to an asset such as a house or a car -- are a different story. Those payments must be made, or the lender can take the asset. If your folks had any equity in a home or car, finding the money to make the payments may need to be a priority.

(By the way, if a surviving spouse is still living in a home, some or all of the equity might be exempt from creditors' claims, depending on state law. Otherwise, the house may need to be sold to pay debts.)

Also, if you're the executor, the person in charge of settling the estate, you have a responsibility to find and inventory all debts and assets. Tax forms, bank statements, credit card statements and checkbook entries can give you clues where to look.

Continued: Don't rush to pay off bills

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