What Happens to Your Parent's Finances When They Die?

If your parent dies and has no surviving spouse, you may need to step in to help settle their finances. Despite also going through the grieving process for your mom or dad, it’s wise to understand some practical aspects of unwinding a parent’s financial situation.

Much depends on your role as assigned by your parent or the court, and your parent’s assets and actions while alive. In some cases, however, you may be able to help settle everyday financial obligations and take action on certain accounts. As tough a subject as this is to face, educating yourself now can make a challenging situation less difficult down the road.

What To Do With Finances When Your Parent Dies

Managing a parent’s estate—what’s left when they die—can be overwhelming. Laws governing a parent’s finances and assets after death can be very complex depending on the state involved.

In general, you’ll first want to locate their will, trust, or other estate-planning documents, which can provide a map for the difficult road ahead. You’ll also want to find prepaid funeral or burial arrangements, which can help save money for related expenses.

If you don’t know where these documents are, look in safes, file cabinets, and even freezers (which may protect documents in a fire). In some states, a will may be filed with a state agency. Or check with your parent’s attorney, if available.

The estate documents will list the personal representative, executor, or trustee who ensures your parent’s plan is carried out as desired. Your mom or dad’s belongings, money, and other assets may or may not go through probate court, depending on how your parent set up their will. If your parent didn’t have a will or trust, the probate court will appoint a personal representative known as an administrator to handle your parent’s affairs. This could be you, another family member, or someone else who wants to take on the role, depending on state law and the circumstances.

Speak with a probate lawyer and/or certified public accountant to understand better which steps you’re responsible for and if you can serve as the executor. A lawyer can help guide you through the probate process, any taxes due, and options available to you as an heir. Even if your parent died intestate, inheritances are often governed by state laws and the deceased’s wishes.

If you’re named as the executor, your task list will be fairly long and complex, and you must carefully follow both your parent’s wishes and state law. Executors sell assets such as the house, pay debts and taxes, and distribute money.

“It’s easy to miss something, whether a tax deadline or certain assets,” said Stuart H. Schoenfeld, a partner attorney at Capell, Barnett, Matalon & Schoenfeld, in a phone call with The Balance. Schoenfeld’s specializations include elder law and estate planning. “Even if a parent’s plan is seamless, at least touch base with an attorney and go through a checklist.”

Whether or not your parent left a will, if their total assets are below a certain state-set threshold, you may be able to use a streamlined process for transferring property and assets to heirs. In many states, this is called small estate or informal probate process. This process may not be supervised by the probate court and is best for modest estates where there aren’t uncertainties or disputes.

Managing Financial Accounts

"Children or heirs may know about the larger items that they can see, such as a home or business, but finding where their parents held bank accounts, brokerage accounts, and retirement assets sometimes can be difficult," said Alpa Patel in an email to The Balance. Patel is a managing director and the West Coast head of wealth planning and advice at J.P. Morgan Wealth Management. This is particularly true if they didn’t leave behind any estate-planning documents.

The estate’s personal representative, court-appointed administrator, or trustee will have the authorization to seek out and locate your parent’s assets, Patel said. That person may contact your parent's attorney, CPAs, and financial advisors because a tax return could provide insights into a parent’s different sources of income.

However, assets from accounts with designated beneficiaries, such as retirement accounts, don’t go through probate, Patel said.

For example, if you know your parent listed you as a beneficiary for a savings account, you’ll contact the institution and follow the rules outlined with the bank, brokerage, or credit union’s “estate services” to close a parent’s account. Typically, you’ll need to provide a death certificate, personal information on your parent, and possibly court documents. The institution will then distribute money to beneficiaries named on the account.

For security reasons, Schoenfeld also recommended contacting credit card companies about your parent’s passing to help prevent unauthorized use.

Making Life Insurance Claims

If you’re listed as the beneficiary of your parent’s life insurance policy, take these steps:

• Locate the policy: Ensure the policy is still active, and get the policy number.
• Contact the insurance company: Submit a claim form and information requested, such as the death certificate and proof of beneficiary.
• Await claim processing: The insurance company will process your claim, which may take a few days to several weeks, for approval.

Each beneficiary may have to file a separate claim if there are multiple beneficiaries. If the life insurance policy is owned by a trust to avoid estate taxes, a more complex process will need to be followed, Schoenfeld said.

In most cases, you won’t pay income taxes on a life insurance policy payout unless it’s a considerable amount. However, depending on your state of residence and the total estate amount, you may pay estate or inheritance taxes. This is a topic to discuss with a tax professional.

Other Inherited Assets

Some property could be transferred automatically based on how the property was titled. In Texas, a Transfer on Death deed may automatically transfer a parent’s property such as homes, buildings, and land. A parent can’t use Transfer on Death to give you property such as jewelry, china, and other small items.  In New York, a parent can only use Transfer on Death if the estate is less than $600,000.

Costs for the Estate To Cover

An estate may need to cover these costs, depending on the situation. Some may be tax-deductible from the final computation of estate taxes owed:

• State and federal taxes
• Property taxes
• Real estate agent fees for selling your parent’s home
• Medical and dental expenses
• Funeral expenses
• Debts
• Costs of settling a trust

Attorney fees could add up, too—for example, if a will is challenged. “If you have to fight in court and one child says, ‘You got more than me because Mom didn’t have capacity,’ that situation could be more drawn out and expensive,” Schoenfeld said.

He pointed out that arguing over assets frequently means less for everyone—the money is diverted into paying for estate-related bickering. Without infighting, selling assets, paying bills, and distributing funds typically doesn’t take long.

When Your Parents Die With Debt

Debt doesn’t disappear after a parent’s death. After-death debt is usually paid off by the administrator with your parent’s money or property as part of their estate, and according to state law. Share any debts you know of with the will’s executor.

Unknown debtors can come out of the woodwork, Schoenfeld said. “Unfortunately, some kids think they’re going to inherit lots of money, but the parents had big obligations with a lawsuit, bills, or a loan they took out.” Even nursing homes may get in line for final payments.

Children aren’t generally expected to pay a parent’s debt unless they were somehow involved in acquiring the debt (such as co-signing a loan). However, if one of your parents died with debt and it’s a community-property state, the surviving parent may become responsible for the debt.

If your parent had a mortgage and left you the house, you may be able to keep the home by taking over payments and working with the lender. If your parent had a reverse mortgage and you want to keep the house, you must choose whichever of these two options is less:

• The full balance of the reverse mortgage
• 95% of the appraised value

How To Handle Complicated Finances

Speaking with a probate attorney is always a good idea, but you may especially need to talk with a probate attorney if your parent’s financial situation was particularly complicated. This may involve:

• Multiple marriages, divorces, and children
• Unpaid debts or taxes
• Beneficiaries under 18 years of age
• Multiple wills
• Missing assets
• Disputes around assets

“A lot of problems and issues could be headed off and dealt with with the right advice,” Schoenfeld said. “People call me, panicked about an issue, but I do this every day, so it’s not such a big deal for me, and it can often be resolved very easily.”

The bottom line: Seek professional help. “You won’t get the job done by what you see on the internet or what friends say,” said Schoenfeld. “Every situation is different.”

Frequently Asked Questions (FAQs)

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