Some Things Die With You - Brief Article

Kiplinger's Personal Finance Magazine, July, 2001 by Kimberly Lankford

My mother-in-law has spent her retirement money and run up large balances on all of her credit cards. When she dies, there will be debt owed. Can she pass that debt to my wife and me? --NEIL P., Orlando, Fla.

"You don't inherit debt," says Beth McKenna, legal editor for Nolo.com. "The days of workhouses are over."

But even though creditors can't reach into your savings to pay your mother-in-law's bills (unless you cosigned for a loan), they will try to recover as much as they can from her estate. The law requires that the executor publish a death notice to alert creditors to come forward and press any claims for money they're owed. They get first dibs on the assets, while heirs wait to receive their share, even if they've been promised certain property in the will.

A few types of assets-including 401(k) retirement-plan balances and life-insurance proceeds-are generally protected from creditors, and some states have rules for protecting IRA money, too. But the rest is usually fair game. If assets creditors can touch aren't enough to cover all the bills, the rest of your mother-in-Jaw's debt dies with her.

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