By Arlinda Babcock, Certified Senior Advisor at Concierge Care Advisors.
It depends. Laws are different from state to state, so the first step is to do some self-education prior to discussing finances with a parent. Don’t make assumptions about what your parents have, what they owe, or why they owe it.
Most people are not open about their finances, so it takes some finesse to approach this subject, and to have what can be a difficult conversation. A good way to approach this could be to imagine putting yourself in your parents’ place and imagine how it might feel to be talking about your money and debt with someone else, especially your children. Be gentle!
A basic approach might be to share your concern about inheriting their debt upon their passing. Most parents don’t want their family to worry about or deal with this issue, so getting it out in the open is the best way to begin. Ask them to tell you about their income sources, expenses, and liabilities. Ask about where records, bills, and important papers are kept. Ask (if you don’t know already) if they have done advance planning documents. This kind of discussion can and should especially be held when one or more parent is having health issues, maybe one has already passed away. You notice that they may be worried about spending money and cutting back on food, medicines, leisure, and one very common sign, letting the home go into disrepair.
Find out what the state laws are regarding power of attorney, financial power of attorney, guardianship laws, and debt laws. If you are a co-signer on an account with a parent, you are legally bound to that debt being repaid. Knowing the status is not only important, but is your legal right and responsibility.
Find about life insurance. Who are the insurance companies, what are the phone numbers and policy numbers for each? What company holds the mortgage, if there is one, and how much is owed? Many times, a second loan on the family home has come as a surprise to surviving beneficiaries.
Ask about pensions, IRAs, Treasury Bills, investment accounts. If you know where to find these accounts, have the passwords, social security numbers, and birthdates, along with a POA (Power of Attorney) you are in pretty good standing for future access. Don’t forget, if one or both of your parents were on active duty during a time of war, they may also qualify for VA Aid & Attendance and other VA benefits.
Credit card debt can reduce the size of an estate, and debt collection agencies will try to convince adult children to pay for a deceased parent’s debt. Again, unless the adult child is a co-signer on the account, that child is not responsible for, and cannot be forced to pay the debt. If there is a lot of credit card debt, suggest some ways to reduce out-flow, paying down, and working with creditors.
Medical debt is another area that varies from state to state. Some states require the bills to be covered by any assets in the estate, but many (about 30) states have laws that require children to cover some part of the parents’ unpaid medical bills if it is determined that the estate does not have sufficient funds to cover the debt. An estate or elder law attorney is the safest way to determine liability in your state.
Another area to look into is taxes; property taxes and income taxes. These should be covered by estate assets without worry that heirs will be liable, but a good estate attorney is the safest way to go if there are any questions or concerns.
As you can see, there are a lot of things to think about with an aging parent, and how to best protect them as well as yourself. A positive outcome of being the adult children of a senior and facing these questions, is that you are more likely to get prepared yourselves, so that your own children will not have to deal with this aspect of your relationship when you are a senior!