It’s not uncommon for the adult daughter of a deceased father to discover that he had numerous credit cards and thousands of dollars in debts.
Kiplinger’s recent article, “Dealing With Debts After Death,” says that in one instance, an elderly father used the credit cards to help pay for his late wife's time in an expensive nursing home.
Typically, the child won’t be responsible for the debts of the parent.
With more seniors piling up debt, many children ask what happens to their unpaid bills when they die. Seniors have been taking on more debt in the last two decades. From 1989 to 2013, the Federal Reserve's latest Survey of Consumer Finances says that debt loads nearly doubled for households headed by older people, from 21% to about 41%. Children sometimes discover a deceased parent's unknown debts. They are also worried they've inherited them.
Some debts aren’t clear, like tax obligations that can impact an inheritance.
Typically, when a person dies, his or her estate owes the debt. Their estate’s assets are used to repay the debt. That will eat into the amount left for the heirs. If there's not enough money to cover it, the debt goes unpaid. As far as unsecured credit card debt, children typically don't inherit a parent's unpaid balance, regardless of the amount or purpose of the spending. But a child who’s a joint holder on the credit card would be liable.
Retirement plans with a named beneficiary, such as a child, can't be reached by creditors of the deceased. However, if the deceased parent named the estate as the beneficiary of an IRA or 401(k), creditors have access to it to collect the late parent's debts.
For a parent's federal student loan or Parent Plus loan, the outstanding debt is canceled upon death. However, the Education Department recently has required the borrower's estate to pay taxes on the forgiven debt.
If the parent dies with a mortgage and you want to keep the house, try to arrange to take over the payments. Another option is to sell, pay off the balance and keep the profit. If the house is worth less than the mortgage amount, the creditor is left with the unpaid debt, not you.
Reference: Kiplinger (April 2017) “Dealing with Debts After Death”