6/20/2012 3:08 PM ET|
When your parents die broke
How estates are settled
If there are no assets at all, settling your parent's estate should be fairly simple. You'll send letters to the creditors explaining the situation and including a copy of the death certificate and that -- probably -- will be that, although you may still have to deal with a random debt collector who refuses to get the message.
If your parent had some assets, just not enough to pay all the debts, your state's probate court has a distinct list of what bills get priority. The details vary somewhat by state, but California's list is fairly typical:
- Expenses for administering the estate, which can include court costs, attorney's fees and executor's fees.
- Mortgages, tax liens and other secured debt, to the extent that the sale of the asset can pay off the loan. Leftover debt generally drops to the bottom of the priority list.
- Funeral expenses.
- Expenses from the last illness, including hospital, doctor, caregiver and pharmacy bills.
- A family allowance, which is typically a stipend that allows a surviving spouse and any minor children to pay essential living costs.
- Wage claims by any employees.
- All other debt.
Tax debt is typically considered to be among the highest-priority debts, equivalent to a lien on any property the dead person owned. Phelps handled one case where a woman with dementia failed to file tax returns for several years, and her entire $50,000 estate was eaten up by taxes, penalties and interest.
Also, hospitals and other caregivers may be fairly aggressive about trying to collect their share, knowing that they're high on the priority list, Phelps said. She recommends trying to negotiate settlements with them once you've inventoried all the debts and available assets, particularly if your parent wasn't fully insured.
Unfortunately, the uninsured are often charged far more than an insurance company or Medicare pays for the same services.
"A doctor might charge $100 but accept $25 as full payment from an insurer," Phelps said. "You may be able to negotiate the bills down substantially . . . especially if you say something like, 'If you accept this (offer), I can send you a check today,' and then do it."
If there's anything left for the credit card companies and other creditors, you'll generally divide the remainder by the number of creditors, Phelps said.
What you can do before they die
If you or your parents find it hard to discuss finances, Phelps recommends setting up (and probably paying for) a session with an elder-law or estate-planning attorney who can review their financial situation and offer advice. Changing beneficiaries or the title to assets, for example, could help survivors better pay bills and protect property from creditors. If your folks are insolvent and struggling to pay their bills, a bankruptcy filing could be a better option than waiting to fend off creditors after their death.
If nothing else, try to scope out your parents' wishes about funeral services, keeping costs in mind. If they'd be happy with lower-cost options, like cremation, ask them to put those preferences in writing to avoid family battles later. If your parents can't prepay their burial expenses and there likely won't be any assets to tap, talk to your siblings about sharing the costs before the inevitable happens. Otherwise, you might find yourself entirely on the hook, since burial costs aren't one of the bills that can be put off.
"The funeral home," Phelps said, "is going to want to be paid."
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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My step dad passed away this year, and he was 10 yrs younger than my mother. The hospital costs were more than a half million, as he was in the hospital two months. Thank God my mother had the sense to get excellent health insurance, because it is all paid. Now I think, if she has to have medical care, I am so grateful that she has the money saved and invested for that purpose. It's not my money, or money for the grandkids. When someone dies, the greed comes out!!
Parents give life to their kids and support and educate them, where does it say that the kids get what ever money is left over from the parents earnings. Turn 21, leave the house and go make your own money.
It is tough being old and not easy to keep up with inflation and medical expenses. Then there is the simple fact that many parents sacrificed a lot raising their kids and finally want to have some fun.
The biggest priority in every family is.............................paying off your home before you retire.....period.
Never take that second mortgage for anything................unless you want to DIE BROKE.
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.
Using this comment board to Advertise a dating website?.
If you are so lonely, go out and help someone else. There, you might find a partner or companion--Dating Sites are people who present themselves in a Fraudulent Bio.
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 "
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