Today’s question comes from Ben from Grand Rapids…
“My question is for me and my three brothers… But probably for a lot of people in similar situations.
I grew up in a family that was by no means in poverty, but we never had a ton of money around the house. And worse – we saw a lot of bad financial scripts.
My parents were pretty bad with money, took on a lot of debt, and never really came together as a team or made any good financial decisions.
Anyway, my brothers and I were all very well aware of that at a young age. So we’ve been very intentional as we’ve grown up and gone to school, got jobs, got smart with money, read a lot of books, etc.
Now we’re in the situation of us all getting married, having kids, and we’d all like to start setting our families up for financial success. And I think we’ve done a pretty good job so far.
But there’s this kind of looming cloud over us – our parents. Neither of them are sick, or dying right now, but we do have a concern in the short term about medical help or long term care that they have no money set aside for…
In a more morbid way, one day, they will pass away. And they have a lot of debt – college debt, credit cards, car loans, potential medical debt, and they have just been quite unwise with the way they’ve handled things. And we were just wondering:
- What specific things can we do or should we know about debts that might get passed down to us kids.
- Second, how would you recommend approaching our parents in a situation where we still love them and respect them, but also be stern and tell them it affects us and our families.
How would you recommend having a respectful and honest conversation? Or, is this not necessary because debt doesn’t get passed down and we can just move on?”
The short answer:
First things first, no, you and your brothers are not responsible for your parents’ debts if they pass away.
But there’s a lot to unpack in response to your questions, Ben! Here are our full thoughts…
Parent convos
I appreciate your attempts to both honor your parents but to also forge a different path. That shows wisdom!
And it sounds like there’s potential that they want to learn to change. That’s a good sign!
Pride and shame often get in the way when it comes to admitting money mistakes and making changes. And fear often keeps kids from bringing this topic up with their parents.
But if done with humility and kindness, it’s possible to get that conversation rolling and have these crucial discussions without causing hurt feelings.
We’d encourage you to go listen to Episode #114 with Cameron Huddleston which is all about having hard financial convos with parents. There’s a lot of great advice from Cameron about exactly how to approach them!
They’ve still got time to make real progress, despite their money issues up to this point. It’s never too late to turn your financial life around.
It’s not easy to have these chats, but it sounds like you and your brothers are in a good headspace to do this well.
Inherited debt
Which debts will you be responsible for? Likely none.
If there were any co-signed loans, those could present an issue. You mentioned college loans – is this your debt? Or did they take out those loans?
When they do pass away, their personal property and assets will pass to their estate. Then their estate repays any unpaid debt, like taxes or unpaid credit card balances.
If the total outstanding debt exceeds the value of the estate, then the remaining debt typically doesn’t get paid. The companies that hold that debt are outta luck.
That doesn’t mean that debt collectors won’t try to trick you into thinking you’re responsible. But you’re not on the hook for it.
Should you help your parents pay their debts?
We’re not keen on you helping your folks actually pay off their debts, especially given your lack of a legal obligation.
Pointing them in the right direction to get help (like consulting with a non-profit org like MMI) is one thing. But pooling your sibling resources doesn’t make sense given that the debt isn’t yours.
Focus on growing your families and make sure you are in a solid financial position first.
The only exception is potentially those student loans. Even if you don’t have legal responsibility, you might have a moral one. It’s worth considering helping your folks out with that part of the debt burden. They took it on to help y’all get an education!
Yes, it’ll delay your financial progress. But I see that as probably the right thing to do for your parents.
You’re not alone
Showing your parents that you are willing to help them on multiple fronts will really help break down some of those conversational walls.
Keep the boundaries clear. Don’t give them money or help them directly with debt payments. There are trained debt counselors out there to help with that stuff.
Also, know that you’re not alone! Millions of kids are going through something similar in this country.
Their parents didn’t know anything about personal finance. And they’ve slowly but surely dug themselves into a financial hole. Decades later, that hole can be quite deep.
But there are steps they can take now to right the ship. And the help of a non-profit debt counselor (an informed third party) could be the perfect place to start if they’re willing.
The Bottom Line:
If your parents die with a negative net worth, their outstanding debts will not be passed down to you. Carrying debt for so long takes a huge emotional toll. So if your parents are in a bad financial situation, make sure to support them as best as you can by connecting them with non-profit counseling services.
Having the conversations with them might be tough. But it’s better to support them and encourage them to make positive changes while they are living vs. letting them suffer alone. Just make sure you approach conversations with respect, love and understanding. They are your parents, after all!
Thanks for the question, Ben. Good luck to you and your brothers!
For the full version of this discussion, check out Podcast Episode #841 (it’s the 1st question in the episode)
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