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Dear Penny: Do I Have to Pay Mom’s Debt With My $1M Life Insurance Payout?

Robin Hartill, CFP®

by Robin Hartill, CFP®

Senior Editor

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Dear Penny,

My mom passed away last year with lots of debt in her estate. This debt includes a mortgage, IRS tax liens, credit card debts and other heirs who would need to be notified of her estate. The estate appears to be in debt just below $200,000 with no other assets available to pay for those debts. 

Unknown to me, my mom made me the sole beneficiary under several insurance policies (well over $1 million), including her lifetime pension/annuity. Per her last wishes, through video recordings, she did not want any other family members to be notified of her death, not even my other half siblings. She said that I should simply walk away from all the debts, and all other belongings, including the mortgage. 

I have done exactly as she wished, by filing all claims and paperwork, including the lifetime pension/annuity that I am now receiving. All proceeds from those claims are now deposited into my own personal accounts as the sole beneficiary. 

The only liquid cash that she had was $3,000 in a bank account with no savings or other source of funds. The entire contents of her estate amounted to around $5,000 of personal belongings. At this time the house has gone through foreclosure, including all the furnishings and personal belongings left inside. 

I have not made any effort to notify any debt collectors and or any parties who would have a claim as a creditor, including any heirs or family members. (Our family has had a bad relationship for over 10 years, and I was the only one who kept in contact.) I also haven’t filed any of her tax paperwork for the prior year for her final taxes. Her final paychecks were issued out to the estate, around $9,000, and would need to go through probate. 

I have essentially walked away from everything as she has instructed, except to follow through with filing claims for both the policies and her annuity. My main question is, will I be liable for anything due under her name such as back taxes or any other obligations that could pop up in the future? 

I have already asked two attorneys but both of them have simply said that I can walk away. But I have some reservations in doing so, as it just does not feel normal. As the sole beneficiary of both the policies and lifetime annuity, am I obligated to pay any taxes or liens that may present themselves in the future? 

-J.

Dear J.,

Maybe this doesn’t feel normal because it’s an unusual situation. So instead of focusing on what’s normal, let’s focus on what’s right.

Your mother’s estate is responsible for paying her debts, including the taxes she owed. As long as she didn’t name you as the estate’s executor and you didn’t co-sign for her debt, you have no obligations here.

Had your mother left you money in her will, it’s unlikely that you would have gotten anything. Probate courts usually require that creditors be paid in full before heirs get a dime.

But as you probably know, some assets — including the life insurance policies and lifetime annuity you received — bypass probate altogether and go directly to the beneficiary. The money can’t be seized by creditors, and you don’t have to worry about taxes or liens. (There are some exceptions for spouses in community property states who inherit assets through beneficiary designation, but clearly that doesn’t apply here.)

The bottom line: This money is 100% yours. You’re not legally or morally responsible for your mother’s debt.

I think the gray area here concerns your relatives. I get that your mother instructed you not to notify them of her death. But if you simply received this communication via a video message, you didn’t agree to anything. Unless your siblings did something truly egregious to your mother that resulted in estrangement, notifying them of her death seems like the humane thing to do.

That doesn’t mean you need to get into details of your mom’s estate or the money she left you. You could send them an email letting them know of her death. If they think they have a claim as a creditor, they can take it up with the probate court. If they ask for more information, you can tell them honestly that you’re not involved with the estate.

Unlike assets that go through probate, money that’s transferred via beneficiary designation typically stays out of the public record. So if you notify your siblings of your mother’s death, it’s doubtful they’d know about the money you received unless you told them about it.

Only you can decide whether it’s appropriate to go against your mother’s wishes and notify your family of her death. But you don’t have to worry about paying off her debt. That money belongs to you, not your mom’s creditors or the IRS.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to  or chat with her in The Penny Hoarder Community.