Many people are concerned that if their parents are unable to pay their debts, they -- the adult children -- will be responsible for them. In general, though, children are not legally responsible for their parents' debts. However, there are certain circumstances in which this simple rule gets more complicated. Here's a look at some of these situations.
If my parent lives with me, do I become responsible for his debts?
The fact that a parent lives with you doesn't, by itself, change the basic rule that an adult child is not legally responsible for a parent's debts. This is true even if the debt was incurred to buy something that everyone in the household uses, such as food, furniture, or appliances. The question of who is legally responsible turns on the name on the debt -- who "signed" for it -- rather than on who got the benefit of the thing purchased.
Does paying a bill for my parent make me responsible for the same bills in the future?
Paying a bill for your parent does not mean that you accept legal responsibility for future bills. But once your name and account number are in the bookkeeping system of the company whose bill you paid, they may assume you're responsible and begin sending you the bills (particularly if your parent does not pay the bill promptly). To avoid this kind of confusion if you want to pay a bill for your parent, write a check to your parent and deposit it into his account, then have him pay the bill directly.
Does creating a joint account make me legally responsible?
One of the ways people become legally responsible for a parent's debts is by becoming a joint account holder with the parent. Having a joint bank account or credit card account may be convenient for both you and your parent, but it can also make for a financial headache. Once you and your parent mingle funds in a bank account, all the funds in that account "belong" to your parent as well as to you and become subject to collection action by your parent's creditors. Similarly, if you and your parent become joint account holders on a credit account, you each are responsible for the entire amount of debt incurred on that account, regardless of who actually signed for a particular purchase.
You can have almost the same level of convenience without the liability of maintaining a joint bank account. If you want to be able to write checks on an account you maintain for a parent, most banks will issue a check-writing authorization for you without requiring you to add yourself as an account holder. With a credit account, you can get a separate card for your parent, with a low credit limit that prevents uncontrolled spending.
Do I become legally responsible for my parents' debt if I co-sign an agreement as a "responsible party" or "guarantor"?
One of the ways that people become legally responsible for their parents' debt is by signing on as a "responsible party" or "guarantor" of an ongoing lease or other long-term contractual arrangement. This is often the case with living arrangements or large purchases (such as a car or home repair) with extended payment terms. If your parents have plenty of funds, signing on as a guarantor may seem innocuous at the time. But if they later get into financial trouble, that guaranty may come back to haunt you.
One of the most common -- and difficult to solve -- of these situations is when parents enter into a new living arrangement. Senior housing, assisted-living communities, and nursing homes often ask a family member to become a financially "responsible party," guaranteeing payment of its ongoing fees, before allowing a family member to become a resident. If your parents run out of funds, you might not want to jeopardize their living arrangements by refusing to pay. But if you do accept the responsibility, it could last for a long time and cost you a lot.
With apartments, senior housing, and assisted-living facilities, the practice of requiring a "guarantor" of fees is legal -- you'll just have to decide whether you want to take on the responsibility.
With nursing homes, however, this practice is illegal under federal law (42 Code of Federal Regulations sec. 483.12[d]). Under this law, nursing homes are not even supposed to ask if you want to "voluntarily" become a responsible party. Nonetheless, some nursing home agreements still contain fine print that claims to make a "co-signer" personally responsible for the resident's bills. If your parents are entering a nursing home, don't sign any agreement or attachment that identifies you as a "responsible party," "guarantor" or "co-signer." However, if you have a power of attorney over your parents' finances, it's lawful for the nursing home to ask you to agree, in that capacity, to use your parents' own funds to pay the nursing home bills. Signing that agreement does not make you personally responsible for the bills.