This week, as I reached into the mailbag, I pulled out two questions, neither of them with easy answers. I was tempted to set them aside and try again, but I decided to tackle both, knowing that my letter-writers are not the only ones facing these kinds of financial situations.
Dear Mary: If my parents are in debt and they die, who pays the bills? I am terrified of inheriting my parents’ debts. —Bethany
Dear Bethany: First, let me be clear that I am not an attorney, so what follows is my opinion. When a person dies, creditors can only look to his or her estate (the assets that person owned upon his or her death) for the payment of debts.
If the debts are shared legally with another person still living, as in the case of a spouse in a community property state, or someone else who can sign on the account, that person may be responsible for part or all of the debt.
Having said that, generally, unless you are a cosigner with your parents on their credit cards and other debts, you could not be held responsible. And their creditors could collect only to the extent your parents left assets in their estates. If they owe $50,000 but die leaving only $10, that’s all their creditors could expect to recover.
And now for the bad news. If your parents do leave assets that you will inherit, their creditors get to stand in line ahead of you.
Let’s say your parents leave a home, cars, personal property, stocks, bonds, or other items of value. The executor of their estate will be required to liquidate or sell them to pay off their debts. Then, if there’s anything left, it is distributed to the heirs according to the terms of their wills and/or trust.
So, while you would not have to pay your parents’ debts directly to their creditors, what you might have otherwise inherited will be reduced by what they left owing.
Contact the Consumer Protection Division, office of attorney general in your state’s capital to find out the specific laws governing your state.
Dear Mary: Our 25-year-old son is moving home (after five years of being on his own) with few possessions and an unbelievable amount of debt. My husband and I don’t know how to guide or support him through this period. We do not plan to assist him outright with money, and we definitely have a plan for the living situation. But what steps should he take so we know he is heading in the right direction financially? We aren’t sure what financial recovery looks like. —Ron and Cidney
Dear Ron and Cidney: The only way I know to handle this kind of situation is with tough love. That being said, I suggest you create a list of house rules, which he must abide by if he moves back. Failure to do so means he must leave.
Rule No. 1: He must get a job. Any job. Maybe two.
Rule No. 2: He must enroll in credit counseling with a reputable organization (find the closest to you at the National Foundation for Credit Counseling website) that offers a debt-management program. He must keep every appointment and be fully accountable to his debt counselor.
Rule No. 3: No credit cards, no debit card. One ATM card only. Money orders will accommodate bills to be mailed.
Rule No. 4: All adult children living under your roof must pay reasonable room and board.
These four rules will force him to live a cash lifestyle and get him onto a debt repayment path that is being monitored and managed by someone other than his parents.
Last, make it very clear that you are not going to bail him out with any loans, advances, or other forms of aid. That’s what I would do.
As a mom, I know it will be harder for you to follow the house rules than for him. But that will be the key to his success.
I wish you well—all three of you! This could be the turning point to get him back on track and successfully out on his own.
Mary invites you to visit her at EverydayCheapskate.com, where this column is archived complete with links and resources for all recommended products and services. Mary invites questions and comments at EverydayCheapskate.com/contact, “Ask Mary.” Tips can be submitted at Tips.EverydayCheapskate.com. This column will answer questions of general interest, but letters cannot be answered individually. Mary Hunt is the founder of EverydayCheapskate.com, a frugal living blog and the author of the book “Debt-Proof Living.” Copyright 2021 Creators.com