It’s always nice to inherit some assets from a parent. But what if the debts exceed the assets? Are you personally responsible to pay them?


The short answer is no; survivors typically aren’t responsible for paying their parents’ debts. But they may still have to scramble to take care of a surviving parent, and there will be some expenses, such as burial and administrative costs. The home may be sold, and there will be costs for clean-up and preparing it for sale.


There also could be some cases where the children are responsible for various debts. They won’t be on the hook for unsecured debts, such as credit cards, personal loans, and medical bills, unless they had agreed to take on the responsibility.  You will 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). Also, if your income and credit history were used to get a loan or credit card for your parents, you become responsible for paying it off. And if you had the responsibility to handle your parents’ finances under a power of attorney, and abused the power to spend the money on yourself, you are responsible for paying it back.

 Secured debts, which are loans that are attached to an asset such as a house or a car, are a different story. These payments must be made, or the lender can take the asset. 

 In any case, as a trustee, you have the responsibility for locating debts and using the assets available in the estate to pay them off. You must notify creditors, banks, brokerage firms, and others of the death. Bills shouldn’t be paid off too quickly, before you see all those that may come in later. You should pay off higher priority expenses, such as funeral and medical expenses, before credit card bills. 

 
While paying these expenses, don’t assume that life insurance or retirement benefits will be available to you. These are typically payable to a beneficiary, who has no legal obligation to use them for debt payments.


Finally, one area of potential liability is a nursing home bill. If you are entering a loved one into long-term care, the nursing home may try to get you to sign the agreement as the "responsible party." It is very important that you do not agree to this. Nursing homes are prohibited from requiring third parties to guarantee payment of nursing home bills, but many try to get family members to voluntarily agree to pay the bills. If possible, the resident should sign the agreement him or herself. If the resident is incapacitated, you may sign the agreement, but be clear you are signing as the resident's agent. Signing the agreement as a responsible party may obligate you to pay the nursing home if the nursing resident is unable to. Look over the agreement for the term "responsible party," "guarantor," "financial agent," or anything similar. Before signing, cross out any terms that indicate you will be responsible for payment and clearly indicate that you are only agreeing to use the resident's income and resources to pay.