When your parents die, do you automatically inherit their debts? Many Michigan residents may be surprised to learn that they have little to worry about when it comes to this estate administration topic; in general, parents' debts are not transferable to their offspring. However, your parents' financial situation can have an impact on the amount you receive through probate or their estate plan provisions. It is important to understand how debt could potentially affect your parents' estate in order to make plans for your own financial future.
In general, unless you have been named as a joint account holder, you will not be directly liable for your parents' debts. In most cases, your parents' balances actually die with them, which is a reassuring fact for many adult children. However, debt can impact beneficiaries in a more subtle fashion: Your inheritance could be sacrificed to creditors.
This is why it is critical for your parents to properly structure their estate plan to protect their assets for you and other beneficiaries. For example, retirement accounts can be distributed to heirs through beneficiary designations. If those designations were never completed or are not up-to-date, it is possible that the money in your parents' retirement accounts could be used to satisfy outstanding balances.
Further, your parents' assets could be seized if they benefited from long-term care provided through Medicaid and other government-sponsored programs. Federal officials reserve the right to seize certain assets from the estates of those who have received care through these initiatives. Adult children are not liable for those payments on their own; however; the money comes out of the older person's estate itself.
The fact that creditors may have a claim to your parents' estate may seem unsettling, but a probate attorney may be able to answer your questions about the future of your inheritance and other estate administration topics. Situations like those described above demonstrate the importance of thorough estate planning. Older relatives should revisit their estate plans as their health and financial situations change throughout their elder years. This will prevent confusion and protect assets for the upcoming generations.
Source: Click On Detroit, "Can you inherit your dead parent's debts?", June 19, 2014