Critter Corner: Can You Inherit Debt from your Parents?

Dear Oakley,

My mother recently told me that she charges everything and has lots of credit card debt and other debt. I’m an only child and she is widowed. If something happens to her, would I inherit her debt? Also, she lives in a condo that has a pretty steep monthly condo fee. If she dies and I inherit her condo, am I required to pay the condo fee?

Thanks!
Owen Munney

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Dear Owen,

Good news for the most part! In most cases, you won’t inherit debt from your parent(s)when they die. However, if you had a joint account with your mother or you cosigned a loan with her, then you would be responsible for any debt remaining on that specific account.

When a parent dies, their estate is responsible for paying their debts, or if the debt is a secured debt such as a mortgage loan or a car loan, then the property used as collateral must be used to repay the loan, or else the lender can of course foreclose on the real estate or repossess the vehicle. If there’s not enough money in the estate to cover the full debt owed, then each state has a statute listing the priority in which debts get paid before anything is distributed to heirs. Some types of debts may have to be paid in full, while other debts at lower levels of priority may not get paid at all.

Credit card debt

As mentioned earlier, if you have a joint account with your parent, where you co-signed the application for the credit card, then you become responsible for that debt. Keep in mind that “authorized users” who didn’t sign the credit card application, are NOT responsible for the debt.

If you aren’t on the account, you don’t inherit the debt. Instead, the debt should typically be paid off with assets from the estate. If there are no estate assets, then the debt will die with your mother.

Mortgages

Generally, if you inherit your parent’s home and it still has a mortgage on it, the lender can not demand that you pay off the mortgage immediately. In other words, the bank can’t call the loan. But you will be responsible for making payments on it going forward.

Condo / HOA Fees

This is a much more complex area of the law. The law generally says that the owner of a condominium (or the owner of a townhouse that is part of a homeowners association) is responsible for paying the condo fee (or the HOA fee). However, the law also presumes that the owner of the condominium or townhouse is living there and taking advantage of the common areas and amenities that the condo fee and HOA fee pay for.

So if you move into your mother’s condominium after her death and use the condo as your residence, or as a second home, you are clearly benefiting from the condo and you will clearly be required to pay the condo fee.

Where the law is murky is if you never move into the condo or receive any benefits from the condo, whether you still are required to pay the condo fee.

Ask any attorney who represents condominium associations, and they will tell you that yes, you are required to pay the fee, and if you don’t, they will come after you personally with a lawsuit. They can also put a lien on the condo unit and foreclose on the lien, but if there’s not much equity in the property they may prefer to sue you personally as the owner of the property.

On the other hand, you will find no shortage of attorneys willing to happily represent you and claim that you are not responsible for the condo fee because you never signed an agreement with the condo association to pay the condo fee, and you never took advantage of using the condominium for your benefit. And there is of course tremendous logic to this claim that if you did not sign an agreement, you cannot be held personally responsible to pay the debt. After all, if you could be held responsible for this debt, that means that someone who inherits a condo with no equity, or a timeshare, or a vacant piece of land that requires an annual real estate tax payment, would be responsible for paying condo fees, annual timeshare maintenance fees, and real estate taxes, even though they never signed an agreement to do so and never used the property.

Extending this concept to its logical but absurd conclusion would also mean that someone owning one of these properties who doesn’t want it could, while living, simply deed it to another person, and this other person would be required to pay the condo fee, timeshare maintenance fee, and property taxes. This could theoretically be the case even if the recipient of the gift never uses the property and never wanted the gift. As stated, this is an absurd conclusion, but remains a murky and unsettled area of the law.

Taxes

The estate is responsible for paying any property taxes and income taxes, delinquent or otherwise. And tax agencies are usually given top priority as creditors.

Student Loans

The estate should pay off private student loan debt, but lenders have no recourse if the estate doesn’t have assets to repay unsecured obligations such as student loans.

Medical Debt

If your parent died with unpaid hospital or doctor bills, the estate is responsible for paying them if it has the money. But check state law. 27 states have what’s known as “filial responsibility” statutes. Those may require adult children to pay for a deceased parent’s unpaid medical debts, such as those to hospitals or nursing homes, when the estate cannot. Read today’s newsletter article for more details.

Protect Your Loved Ones from Having to Pay Your Debts

The Living Trust Plus® protects your assets from lawsuits, auto accidents, creditor attacks, medical expenses, and, most importantly, from the catastrophic expenses typically incurred in connection with nursing home care. Contact the Farr Law Firm at 703-691-1888 for more information and for a no-cost initial consultation.

Hope this is helpful!
Oakley

 

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