With almost 70% of the retiree population solely living on social security it is not surprising that the percentage of families with debt headed by someone age 65 to 74 rose from about 50% in 1989 to about 66% in 2013. Personal debt nearly doubled during the same time period from 21% to about 41%. For most seniors the debt is not being utilized to live a lavished lifestyle but to pay for expensive nursing home, aids and in-home care.
As seniors accumulate this debt their families become concerned over what happens to their unpaid bills when they die. It is recommended that families discuss these increasing debts, what amounts, if any, will be the responsibility of their estate, and what they can do to protect an inheritance for their heirs. Families need to recognize that their children are not responsible for their debts at death and only the decedent’s estate assets (subject to probate or Trust administration, but excluding exempt assets) can be utilized to repay the debt. For example, a retirement account (IRA or 401(k)) with a designated beneficiary is creditor protected. A parent’s federal student loan debt will be canceled at death, although taxes may be owed on the forgiven debt.
It is important to consult with a legal specialist to learn more about the options that are available in each state.