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Estate planning in California: How debts could outlive your parents

On Behalf of | Feb 28, 2022 | Estate Planning And Litigation |

Estate planning is a critical financial tool that people in California create to manage their assets while alive and after they die. If your parent created an estate plan and didn’t account for their debts well, it can affect your inheritance or you as an individual. Here’s how.

Inherited debts in California

When a parent dies, their estate will be responsible for paying off their debt. Therefore, if your parent is still alive, talk with them about estate planning and how they can deal with their debts. Some of the ideas you can raise include:

  1. Ensuring their estate plan is up to date to address all their assets and debts. You don’t want a creditor to approach you with a debt you didn’t know your parent had after they are gone.
  2. Ask them to set up a trust. The named trustee will be responsible for paying off all the debts in the best way possible.
  3. Advise them on payable on death accounts. Assets in these accounts will go directly to their named heirs after they die, thus avoiding probate.

Passed on debt in California

When your parent dies and leaves behind debts, the law can hold you responsible for them if:

  • You are legally responsible for paying that debt; for example, if your parent named you the executor in their estate plan
  • If you co-owner the account that your parent used to acquire that debt

Can California filial responsibility laws affect you?

California is one of the few states that have filial responsibility laws. These laws can hold adult children responsible for their parents’ debts (California Family Code § 4400). So, there are cases where a creditor can sue you for your parents’ debts; but this rarely happens because California has another law (Welfare and Institutions Code § 12350) that directly opposes the Family Code § 4400.

It could be very difficult for you if your parent leaves you with their debts. So, if your parent is still alive, address the debt issue as soon as possible. However, if they are already gone, take advantage of the law to avoid lawsuits from creditors.

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