A big question that comes up when a parent passes away is what happens to all the debts they have. Can creditors come after you for things like unpaid mortgage debt, credit card balances, or a hefty car loan that belonged to your parents? In today’s estate planning blog series, we’ll take a look at how different aspects of parental debt play out and estate planning strategies to leverage.

If you find yourself in a similar situation, you can go ahead and speak with a Will Gurus estate planning attorney now.

Do You Pay Your Parent’s Credit Cards After They Die?

If your parents die with a large credit card debt, the good news is that you’re most likely not personally responsible. When your parents signed up for the credit card, they were the ones entering a payment agreement. The cardholder agreement is a lot of pages of fine print, but it also spells out what’s being agreed to and by whom. Since you personally didn’t enter this agreement, you generally aren’t liable.

The caveat here is that the credit card companies can make it seem like you are responsible. They may assign the debt to a collection agency that has no issue sending threatening demand letters, calling or texting, or otherwise harassing next of kin and executors. However, keep in mind that credit card companies will have to go through the proper channels with a valid claim in probate court in order to collect. While you may feel partly responsible, it is not up to you to pay off your parents’ credit cards when they pass away.

What Happens to My Parent’s Mortgage if They Die?

A house and piece of property are a little different than purchases on a parent’s credit card. In the State of Tennessee, when a person dies, the real estate gets vested to the heirs or named beneficiaries of the estate (TN Code § 31-2-103). A will may direct around this by placing the property into a trust under the control of a personal representative. 

If you inherit property and want to keep it, you must keep up with the mortgage payments. Since a bank or separate lender holds the mortgage, the property would simply be foreclosed and repossessed if payment is not made. If a will names multiple beneficiaries for the estate, it may also direct that the property be sold and divided equally. In this situation, usually, the executor utilizes money from the estate to maintain the mortgage and property until it sells. If the will does not specify selling the property, it can be a bit trickier to divide the property among heirs and beneficiaries fairly.

The moral of the story here is to start with a strong will that truly keeps your wishes intact. There are several different types your Will Gurus attorney can recommend based on your situation. When there are multiple beneficiaries, it can be a godsend to have a clear division of who gets what. That way, there is no question, no room for debate, and fewer squabbles at a time when everyone’s emotions are already running high.

Car Loans and Other Debts of Deceased Parents

When a car loan is made, the vehicle itself serves as collateral. If your parent dies and they still carry a balance on their car loan, the note should be paid on time, or the bank or lending company will likely repossess it. If you like the vehicle, you’ll need to continue making payments. If you’d rather sell, you’ll need to satisfy the loan first, but then you can do what you please with the remainder. Of course, you can also choose to do nothing and just wait until the bank moves ahead with repossessing the vehicle.

If the vehicle becomes a part of the estate, it becomes the executor’s responsibility as they take inventory of assets and outstanding debts. The executor can use assets to pay off debts tied to the estate.

Times You May be Responsible for Deceased Person’s Debts

Remember, debts don’t usually just go away when someone dies. Owed debts from creditors who have gone through the proper channels will need to be paid from the estate. Now, if the estate does not have enough assets to cover the debt, the debt may go unpaid. 

However, there are times when you may still be personally responsible for a deceased person’s debts, such as: 

• You were a co-signer on a loan, like a car loan.
• You were legally responsible for resolving matters of the estate.
• You were married to the deceased and now live in a community property state.

Worried About Debts? Start Making Your Ideal Tomorrow, Today

If you are a parent or a caregiver, having a plan in place for tomorrow means enjoying today. When you come into Will Gurus, we’ll look at your unique situation and chart a path forward that incorporates your ideal vision. From wills and trusts to estate planning and guardianships, we’ll help you choose the most advantageous long-term solutions so you can enjoy the here-and-now worry-free with your loved ones. 

Contact our team at (865) 666-6175 or fill out the quick and easy contact form, and a representative from our office will be in touch with you shortly.