The general rule is no, you do not have to pay your parents’ debts when they die. Those debts will be paid from the probate estate, under the rules and procedures governing probate in your state.
Should you pay your parents’ debts when they die?
You should pay certain debts and obligations of your parents when they die, out of your own pocket, but only those debts that benefit you. For example, if a parent owned a home that you wish to inherit, you may want to pay old (and new) bills for things such as electric, gas, lawn maintenance, and similar items, to avoid an interruption in service. Because it may take some time before the probate estate is operating and able to pay such bills, you may want to pay these bills out of your own pocket.
How are my parents’ debts handled by the probate court?
Each state has a comprehensive set of rules and procedures for how the debts of a deceased person are to be paid. In general, a Notice to Creditors is published in a local newspaper, informing the public that an estate is open and that there is a deadline for creditors to file a creditor claim. Certain creditors, known as reasonably ascertainable creditors, must be sent the Notice to Creditors. Otherwise, such a creditor might not be bound by the deadline that was published in the newspaper.
After the creditor claim period has expired and the assets of the deceased person have been gathered by the personal representative, the creditor claims are then paid. If there are sufficient assets to pay all of the creditor claims, they will normally all be paid. If there are insufficient assets to pay all of the creditor claims, each state has a classification system to pay each class of claims in a certain order. For example, the expenses of administration (lawyer fees) are normally paid first. Next paid would typically be funeral and burial expenses. Unpaid alimony and child support and unpaid income taxes would follow. Once all of the “priority” creditor claims are paid, the remaining creditors share in the remainder of the estate.
What if there are not enough assets in the probate estate to pay all of the creditors?
If the probate estate does not contain sufficient assets to pay all creditors, some creditors will simply not be paid. You have no obligation to pay your parents’ debts with your own funds.
Do I have to pay my parents’ bills with life insurance I received?
No, if you are the beneficiary of a life insurance policy, the death benefit belongs to you. You do not have to pay creditors. However, if there is no named beneficiary or the estate is named the beneficiary, in most states the life insurance death benefit will then be subject to creditor claims.
Do I have to pay my parents’ debts with money that was in a joint account?
No, money in a joint account with rights of survivorship belong to you. You do not have to pay debts with it.
Are there any circumstances where I do have to pay my parents’ debts with my money?
Yes, but under conditions where property was transferred to you that used to belong to a parent. For example, property transferred to you pursuant to a joint account designation or pay on death designation, as well as property that may have been gifted to you within the recent past. In such situations, a creditor might argue (and win) that the account titling or recent gift was nothing more than attempt to avoid the payment of creditors. Some states do recognize such a claim.
The Internal Revenue Service also has the ability to go after jointly titled accounts and recent gifts for the payment of unpaid taxes by the deceased.
Finally, if you guaranteed a parent’s debt, then the contract provisions of the guarantee would control whether you need to pay the debt.
