6/20/2012 3:08 PM ET|
When your parents die broke
Inheriting your parents' debt is probably not what you anticipated. The good news is that you may not be legally responsible for it. Here's what you need to know.
Baby boomers and their kids are expected to inherit about $27 trillion in the next few decades, according to the Center on Wealth and Philanthropy at Boston College. Rebecca in Wisconsin doesn't expect to receive any of it.
She's already bailing out a 68-year-old father who spent all the life insurance money from her mother's death.
"I am resentful because he had received a large sum of cash after my mom died eight years ago and blew it all," Rebecca wrote on my Facebook page. "I even gave him my half of the insurance money."
Rebecca has plenty of company. Before the recession, one in seven households headed by people aged 65 to 74 was worth $10,000 or less. Among those over 75, it was one in 10, according to Federal Reserve statistics.
Even those with something now have less. The median net worth of households headed by people 65 to 74 dropped 18% between 2007 and 2010, according to the Federal Reserve's latest Survey of Consumer Finances. For near retirees, those aged 55 to 64, the plunge was nearly 33%.
Many have seen their savings pounded by bad markets and low interest rates. Shriveled home values and spiraling medical costs have also taken their toll. Even living longer than expected can cause a nest egg that once seemed adequate to run out.
The vast wealth transfer to come is a bit of an illusion, anyway. Most of the money will go from the richest families to their (likely already well-off) kids. Even among the affluent, however, fewer parents seem determined to leave an inheritance. A Merrill Lynch survey of people with $250,000 or more in investable assets found only 41% said preserving inheritances was a top concern, compared with 54% in 2009. Far more survey respondents said their top concerns were high medical costs (79%), ensuring their retirement assets would last a lifetime (60%) and being able to afford their desired lifestyles in retirement (55%).
For many people, hopes of receiving an inheritance someday have been replaced by hopes that they won't inherit their parents' bills.
"When my mother died, she had about $100 in the bank, $5,000 in debt, hospital bills and a small whole-life insurance policy that had been borrowed against and was practically worthless," another reader wrote. "I paid for most of her funeral."
The good news is that the younger generation typically isn't responsible for parental debts. But survivors may still have to deal with aggressive collection agencies and expenses from settling their parents' estates. They may have to scramble to take care of a surviving spouse or even dependent children. The family home and other assets may have to be sold. And somebody's got to pay for the burial.
If your parents are among this crowd, you need to know:
- Your responsibilities when your parents die broke.
- How insolvent estates are settled and how to deal with creditors.
- What you can do now to ease the burden later.
Read on for some practical advice.
What you owe when your parents go
Children aren't on the hook for their parents' unsecured debts -- credit cards, personal loans, medical bills -- unless they somehow agreed to take on the responsibility, said attorney Denis Clifford, a co-author of the Nolo Press guide "Plan Your Estate." You'll typically share liability for a debt if:
- You were a co-signer on a loan. A co-signer is just as responsible for paying off a loan as the primary borrower.
- You're a joint (not an authorized) account holder. If your income and credit history were used to get the loan or credit card, you're generally responsible for paying it off. If you were added as an authorized user of a credit card, though, you're not.
- You abused a power of attorney or conservatorship. If you had responsibility for your parents' finances and spent their money on yourself, you're responsible for paying it back.
Michele in South Dakota said that's what her mother did. The older woman drained Michele's grandparents' savings accounts, borrowed against her grandfather's life insurance and racked up $20,000 on the couple's credit cards with "frivolous spending." Then she died.
VIDEO ON MSN MONEY
In my own case, my father died penniless at age 51. As I was the only child living in the area, I agreed to tie up his affairs. It seemed a simple matter. File his final tax return, relinquish the boat he was living on to the company which financed the loan, provide death certificates to his creditors, disperse his pension fund survivors benefit evenly to his surviving children after paying the cremation expenses, tie up the loose ends. These things I did because I loved my Father. End of story, right?
Well, not quite. A few months later I received a demand notice from the IRS for back taxes and penalties owed by my father from when he took home a modest severance package from an old employer and failed to pay the taxes. The IRS wanted the money owed and when it comes to tax debt, (so I discovered) even pension funds are potentially fair game. The thing is, I couldn't even put the issue to a test for the IRS was tacking a hundred dollars every month in late fees and penalties and I, as the executor, was on the hook for the entire mess.
The debt wasn't exactly ruinous in the grand scheme of things, being only about four thousand dollars by that point, but it represented a sizable portion of my entire life savings. Yet fighting rather than paying could mean an extra $1200 a year (or more) plus legal fees if I lost. What could I do? I had to settle.
My share of the disbursed pension benefit didn't come anywhere close to covering the bill, and my sisters had already used their shares to pay down their own bills. I had to pay the IRS out of my own pocket. and count it as an expensive lesson learned.
In a way I was fortunate that the sum was only a few grand. Others in my position have found themselves on the hook for far more. Take a lesson from my own mistake and consider long and hard before agreeing to handle the estate of a parent who dies penniless. You never know what rude and costly surprises you may be signing up for.
When parents die broke?
These kids today will be screwed-whose basement can they fill now?
Generally people get the life they deserve:
1. They p-off in school and don't bother to learn anything, so they only get low-end jobs.
2. They p-off on the job and after being fired a few times other employers avoid hiring them.
3. So they barely get by all their life and have nothing saved to retire on later.
4. So they expect others to come to their aid all along--using the tax man to get into your pocket because they are "needy".
5. Then when old, they expect you to be compassionate and help them out some more.
When will people wise up and let people receive what they have planned for so well. I know this sounds hard but life isn't easy and never will be. You have to take charge of your own life.
Here's a different spin, in your last days, prepay for your funeral/cremation, with a credit card. Since the credit card is unsecured debt, according to the aritcle, your heirs are not on the hook for this debt. Take all your money out of the bank, IRA's, 401K's and put it up. Leave a letter to the one you trust the most as to where you have hidden it. Put you car in one of your children's name if it is free and clear. Do the same with all your property , check and see what the statute of limitations are on the time limits to this.
Remember "you came into this world pennyless and naked, it you leave the same way, you broke even".
Stop thinking you are going to live forever, look at the "obits" in the paper every Sunday do the averages of all the ages, it will surprise you on how young people are passing a way.
Here's a template for a Last Will and Testament EVERY Boomer parent should use:
" Being of sound mind , I blew it all while I was alive "
Oh well there goes 95 % of peoples retirement plans right down the old drain!
Everyone needs to go over their parents will and have a good and honest discussion. DO NOT let this happen to you, plan effectively and honestly!
I am presently facing this exact scenario. My father passed away quite conveniently before their assets ran out but my mother has already outlived her assets completely. I am now her power of attorney and her financially responsible party and designated guardian because of advanced dimentia That really puts me in an awkward position. I am now serving as her 24/7 care giver until she passes away. I have already borrowed as much money as I can to keep her solvent but that has now run out as well.
I am a widower myself and am now sacrificing all that is left of my life in behalf of my mother. I refuse to do this to my two sons so as soon as my mother passes I am planning to vacate this country in favor of a far more hospitable place where my pensions go far enough to take care of me and socialized medicine is readily available. If that is insufficient then I will simply expire where ever I happen to be. So much for the American dream. LOL
Dating Websites are full of duds, or people with criminal pasts--avoid them. Check the comment and mark it as "Spam".
Only meet the person in a neutral place where there are people. The person usually turns out to be a fraud. Experience. Losers.
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