I am 58 years old and have terminal cancer. My mother is 81. She gets a small Social Security benefit every month and gets medical care, and a small food allowance from the government. For the last 30 years I have helped support her; my brother, who is 47, moved to another state and contributes nothing. I have managed to contribute to a simple IRA and have almost $100,000 in it.
I rent my place. I own nothing except my car, which is paid for. I’ve listed my mother on the title so it goes to her at the time of death. I have her name and brother’s name listed on the individual retirement account (IRA). Hopefully, it will last until she passes.
I do, however, have credit-card debt. Will she be responsible for paying my debt? I took her name off all my credit cards. My friend said the credit card people will come after her to get it from the retirement account.
Thank you so much for your time.
It obviously speaks to your good character that, while you are dealing with a terminal cancer diagnosis, you are thinking of other people. I think the world and, certainly many letter writers, could learn from that. In fact, we all could. You have gone to great lengths to ensure that your mother is taken care of. Your actions are proof that the real wealth in life lies in the quality of the relationships we have, how we treat other people and the memories we leave behind. I imagine that in terms of your impact on other people during your lifetime you are a very wealthy person.
To answer your question, your credit-card predicament has two possible scenarios, depending on who signed for the credit card. If your mother was a joint account holder, rather than just a co-signer who was authorized to use the account, then she would likely be on the hook to pay the remaining debt in the event of your passing. There’s a big difference in terms of the responsibility. I’ve heard from people whose siblings became co-owners of their parent’s joint bank account when that parent and siblings thought they were just a co-signatory, for instance.
However, if your mother was only authorized to use the account and was a co-signer rather than a co-owner of the credit card, it’s a different story, says Geoffrey Kunkler, an estate attorney with the law firm Carlile, Patchen & Murphy in Columbus, Ohio. In those circumstances, your mother is in the clear. If you are the only person responsible for the credit-card debt — and the only one who signed the original contract — then the debt can only be satisfied from the assets of your estate and not from assets inherited from outside of your estate (such as an IRA), he says. In that scenario, the credit-card company could not pursue your mother.
Even if your mother was a co-owner of the credit card, rather than a co-signer, an asset like the IRA that names a beneficiary would pass outside of the probate estate as a matter of law to the named beneficiary. “In that case, the credit card company could only recover against the probate assets,” Kunkler says. “It sounds like her car is titled transferable-on-death which would cause it to transfer outside of the estate as well.” As such, your estate may just include small cash accounts and your personal property as well as any other assets in your name and without a named beneficiary, meaning any cash that doesn’t go to a named beneficiary.
The credit-card company would be in-line to receive money from your estate that goes through probate, only. And it’s not just IRAs that are out of reach: “401(k)s, brokerage accounts, and insurance, typically pass to whomever you’ve named as a beneficiary, which is one good reason to keep those designations up to date,” according to CreditCard.com. Talk to an estate planner or looking into free legal aid to make sure that the IRA does not impact any of your mother’s existing government benefits. And I would consider leaving 100% of the IRA to your mother. There is no guarantee that your brother would use his share to care for your mother after you’re gone.
Thank you for writing, Tracy, and for your time.
Do you have questions about inheritance, tipping, weddings, family feuds, friends or any tricky issues relating to manners and money? Send them to MarketWatch’s Moneyologist and please include the state where you live (no full names will be used).
Would you like to sign up to an email alert when a new Moneyologist column has been published? If so, click on this link.