What Happens to Your Parents’ Debts After They Die?

Many older Americans die in debt. But their debts lives on — and those debt levels are on the rise.

The average debt of American households headed by someone 75 or older was $36,757 in 2016, according a recent report by the Employee Benefit Research Institute.

That was 21% more than the average of $30,288 in 2010, the Washington, D.C. institute reported.

More than 40% of single adults get in excess of 90% of their income from Social Security. Government data show that the average amount of a monthly Social Security check is just $1,404.

Meanwhile, unpaid student loans still loom over many older Americans, according to the Government Accountability Office.

The number of Americans who are at least 65 years old and had their Social Security payments cut due to student loans increased more than sixfold from 2002 to 2015.

Justin Halvorsen, a co-founder of Minneapolis-based Great Waters Financial, says older Americans should try to renegotiate the terms of their debts with creditors.

Hospitals, for example, sometimes forgive the debts of senior citizens struggling to repay, he said.

Lori Trawinski, director of banking and finance at the AARP Public Policy Institute, says senior citizens who doubt they can remain current on mortgage payments should contact their lenders.

Don’t wait too long, though. Negotiating with a mortgage lender is far more difficult when borrowers wait until they are ”three or four months delinquent,” she said.

Reverse mortgages, too, allow homeowners 62 or older to pull equity out of their property without relocating. But this option is wrong for some senior citizens.

Seniors whose mortgage balances exceed the value of their homes should consider staying put and renting out part of their homes to tenants, says Craig Copeland, a senior associate of the Employee Benefit Research Institute.

Debt and dying

Almost half of American senior citizens die with less than $10,000 of financial assets, the National Bureau of Economic Research found in a 2012 study.

Depending on which state laws are applicable, a surviving spouses may be responsible for a deceased spouse’s debts.

But non-spouse survivors typically have no obligation to repay the descendant’s debts — unless they co-signed a loan or applied for credit together. 

Estates are not required to use assets that pass directly to heirs to repay the loans of a deceased debtor.

If a deceased debtor dies with no assets, sometimes the survivors should simply “rest and do nothing. Let a creditor handle it,” says Jennifer Sawday, a lawyer in Long Beach, California, who specializes in estate planning.

Experts do advice older Americans to take steps to whittle down their debts while they can.

The National Agency Council on Aging provides a personalized report on budgeting and money management free of charge.

The council also has an online tool that senior citizens can use to determine their eligibility for benefits ranging from meal deliveries to tax savings.

The American Association of Retired Persons (AARP) offers a tool that helps senior citizens prepare for future healthcare costs.

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