When Can a Family Member be Legally Responsible for the Debts of an Elderly Loved One?

By Sue D. and River

As our loved ones age, we often find ourselves taking on more responsibility for their care. This transition can be a difficult adjustment, especially when it comes to managing their finances. You may be wondering: When can a family member be legally responsible for the debt of an elderly loved one?

The answer depends on a few factors, including the type of debt and the state in which you live. But generally speaking, if your loved one is unable to manage their own finances or repay their debts, you may be held responsible. In this blog post, we'll explore some of the scenarios in which this might occur. We'll also provide tips for protecting yourself from becoming liable for your loved one's debts.

What Are the Circumstances Where a Family Member May be Legally Held Responsible for Debt?

Generally, family members are not responsible for debts incurred by other family members. So, for example, you would not be responsible for the debts incurred by your parents or adult children. However, there are exceptions.

If you cosign the debt, you are legally responsible for paying the debt if the primary borrower defaults. For example, if you are a cosigner on a personal loan or credit card account, you are responsible for the debt, even if you did not use the funds or make the charges.

Even if you do not own the property, you could be legally liable for the debt if you cosign the note. The same would apply for a car loan, student loans, and other credit accounts.

In some states, spouses are responsible for medical debts for each other. Likewise, if your name is on a utility bill or cell phone bill, you could be liable for the debt depending on state law.

About 30 states have “filial responsibility” laws. These laws require adult children to pay a parent’s unpaid medical bills. While many states do not enforce these laws very often, states could possibly enforce the laws in the future.

A nursing home or assisted living facility contract may have a “guarantor” clause that requires a family member to be personally responsible for unpaid charges. It is similar to cosigning debt.

If you live in a community property state, you are equally responsible for paying your spouse’s debts acquired during the marriage. It does not matter whose name is on the bill.

Since many older couples choose to live together without getting married again, it would be wise to research the laws in your state related to common law marriage. Some states recognize common law marriage, but others might not. The rules and requirements vary by state as to what constitutes a common law marriage.

If your state recognizes common law marriage, does it afford partners married under common law the same rights and privileges as couples who have a marriage license? If so, you would be equally responsible for any debts acquired during the marriage in a community property state. Furthermore, for states that make spouses responsible for medical debts, you would be responsible if you were married under common law.

There could be other situations where you are liable for a family member’s debt. Before paying the debt, check with a lawyer if you are unsure of your legal responsibility. Creditors and debt collectors are not reliable sources of advice regarding your legal obligations and rights.

Is an Executor or Personal Representative Personally Liable for Debts of a Deceased Family Member?

Debt does not disappear when a person dies. Medical debts, student loans, mortgages, car loans, credit card accounts, taxes, and other debts left generally become the estate's responsibility.

The executor or personal representative is the person who administers a probate estate. They are not personally liable for any of the deceased’s debts unless they cosigned the debt or are a spouse in a community property state.

However, the personal representative or executor has a duty of care to notify creditors of the estate. The executor reviews claims filed with the estate and pays valid debts from the estate assets. Debts must be paid before distributing funds or assets of the estate to the heirs.

It is important to note that there is no loan forgiveness for secured debts. The secured debt follows the collateral. Therefore, if you inherit your parents' home and the home secures a mortgage, you must pay the mortgage to keep the home. Otherwise, the lender can foreclose the mortgage to seek payment for the debt. On the other hand, if you sell the home, the mortgage company is paid before you receive any money from the sale.

If there is no estate or insufficient property to pay the debts, the creditors write off the debts. They cannot demand payment from the personal representative or the heirs unless those individuals personally guaranteed the debt or state law makes the persons liable for the debt.

Does a Person With a Power of Attorney Assume Responsibility for Debt?

A power of attorney is a legal document giving another person authority to handle financial matters in your name. You (the principal) give your power of attorney (agent or attorney-in-fact) authority to perform any financial transactions that you could legally take yourself. Some powers of attorney could limit the actions an agent may take. You need to carefully read the document to determine if it restricts or limits the agent’s power to act in any way.

When a person dies, a power of attorney is null and void. The agent cannot take any further action regarding the person’s financial matters. That authority transfers to the person’s probate estate. The personal representative has the duty of managing the deceased person’s assets and debts.

An attorney-in-fact can apply for credit or sign loan agreements for the principal. However, they are acting on behalf of the principal. Therefore, they are not acting for their benefit.

Generally, an attorney-in-fact is not legally liable for the debts incurred by the principal unless they are cosigners or live in a community property state and the principal is their spouse.

However, suppose the attorney-in-fact breaches their fiduciary duty to act in the principal's best interests or commits fraud. In that case, they could be liable for damages caused by their actions. For example, if the attorney-in-fact opened a line of credit in the principal’s name to use for their benefit, the principal or his heirs could sue the attorney-in-fact for damages. Another example might be the attorney-in-fact refusing to pay or ignoring legitimate bills the principal owes. If the creditors sue the principal, the attorney-in-fact could be sued for damages caused by their breach of duty.

Breach of duty cases can be difficult to win without hiring an experienced lawyer to handle the case. Winning the case requires the principal or the principal’s personal representative (if the principal is deceased) to prove each of the following legal elements:

  • A fiduciary duty existed between the parties
  • The person breached their fiduciary duty
  • The principal sustained damages
  • The breach of duty caused the principal’s damages

Breach of duty cases generally involve proving that the attorney-in-fact misappropriated funds, abused their authority, failed to execute their duties and responsibilities, or committed fraud and misrepresentation. If you cannot link each of the above elements together to show the attorney-in-fact’s actions or inactions directly caused the principal harm, the attorney-in-fact might not be held liable for the debts they caused the principal to incur.

How Can Families Prepare So They Do Not End Up Being Legally Responsible for Debt Payments? What Laws Protect People and Family Members?
State laws vary regarding the duties and rights of family members regarding debt owed by another family member. Therefore, the first step in protecting yourself, so you do not owe your family member’s debts is to understand the laws in your state, including state laws regarding debt collection.

You should also review your rights regarding debt collection under the Fair Debt Collection Practices Act (FDCPA). The FDCPA prevents debt collectors from taking specific actions to collect a debt. For example, a debt collector can contact you about a family member’s debt, but they cannot demand you pay the debt if you are not legally liable for the debt.

Some debts may be eligible for loan forgiveness after a person’s death. For example, providing proof of death to the government discharges federal student loans when the borrower dies. The loan forgiveness also applies if the student dies. Some private student loans may offer loan forgiveness after death, but there is not a law that requires the lenders to forgive the debt upon death. Unfortunately, very few debts are eligible for loan forgiveness. As a result, most debts become the responsibility of the probate estate.

In most cases, you are not responsible for the debts of an elderly loved one. However, when families do not discuss arrangements for caring for elderly parents, things could become confusing. In addition, a family member may do something that could create liability for debt. Therefore, cooperation and communication between family members can be one of the best ways to avoid becoming liable for another person’s debt.

Get our free reference guide here. Our reference guide can help you take steps to ensure your elderly loved ones are cared for while protecting yourself from becoming liable for their debts.