Are You Responsible for Your Parents Credit Card Debt?

By Kristy S. Phillips

I was talking with my mom the other day when she made the comment that she hoped that they had enough to support themselves for the rest of their lives. She added she had always hoped to leave the kids a legacy, but now she was afraid that is not going to happen. My dad has always been a good provider and I am sure this is difficult for both of them. With the economy in shambles my parents are faced with a falling home value, dwindling retirement savings, and inflation on the basic commodities they need to live. They are not alone. The sad truth is that older Americans are racking up serious debt.

Debt among Americans between the ages of 65 and 74 is growing faster than for any other age group. The latest figures available from the Federal Reserve, show the median debt level of that age group was $40,130, up from $27,458 in 2004. Strategic Business Insights’ Macromonitor conducted a separate survey and established that Americans 75 and older carried an average of $7,200 in credit-card debt in 2010, triple the level of 2008.

How do you deal with your parent’s debt. I read an article the other day that seemed to indicate that if your parents didn’t have a will, you wouldn’t have to go to probate and you would not be responsible to pay their debts. I can see how the reporter put a limited knowledge of the law together and came up with this conclusion. I was worried that older folks would see this article and avoid estate planning to get out of their debts and maybe leave something for their children. The reality is that this will not work, even though it is true that nobody in the United States is responsible for the debt of another. When someone dies the law is set up so that you must pay the debts before you distribute their estate.

Here are the facts. Let’s say your parents owe $8,527 on their Bank of America credit card. They also own all of their property in a trust. When they die, because of the trust, you do not have to go to probate to get control of their assets, but if you don’t pay off their debts, any creditor can start a probate proceeding and require the estate to settle the debt. So, Bank of America could file a probate in your parent’s name and then they would become the executor of the estate. It would be very awkward, and more costly,  to have Bank of America control your parent’s estate. So do help your parents understand that the estate will have to pay their debts. And if a trust is in place and funded correctly, it can help the family avoid a costly probate.