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Dear Penny: Could Creditors Seize Mom’s Estate to Pay My Brother’s Debts?

Robin Hartill, CFP®

by Robin Hartill, CFP®

Senior Editor

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Dear Penny,

My mother lives in Florida, and my sister and brother and I live in New Jersey. My mother has made my sister and I executors of her will. She doesn’t have much of an estate, but it is supposed to be split evenly among the three of us. 

However, my brother has been on SSI for years. He has been in and out of the hospital and likely has unpaid medical bills. He hasn’t filed a tax return for at least 10 to 12 years. I don’t know for certain, but I think he owes more money than the entire estate is worth. 

Would the estate be responsible for first paying all of my brother’s outstanding debts before any money is distributed? If that is the case, there likely wouldn’t be anything left for my sister and I.

— C.

Dear C.,

As long as your mother hasn’t co-signed for any of your brother’s debts, you don’t have anything to worry about.

When someone dies with debt, their creditors can file a claim against the estate. One of the executor’s duties is to notify creditors of the person’s death. If the estate doesn’t have enough money to pay off all debts, the estate is considered insolvent. No one will get an inheritance, and some creditors won’t get paid in full.

Dear Penny

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But beneficiaries get paid regardless of whether they’re in debt. Each of you will receive their one-third. Then, if your brother’s creditors discover his inheritance, they’d be free to go after it. For example, if your brother deposited the money in a bank account and a creditor had a judgment against him, they could petition a court to garnish the account.

The big concern I’d have here is for your brother. Supplemental Security Income, or SSI, is a means-tested program. Essentially, having assets above a certain amount can make you ineligible for benefits. In 2023, having assets worth more than $2,000 for individuals or $3,000 for couples typically disqualifies you for SSI.

When your brother gets his inheritance, he’ll have to report it to Social Security within 10 days after the end of the month that he receives it. An inheritance could also put other benefits, like Medicaid, at risk.

Even if your brother disclaimed his inheritance, which means he wouldn’t take possession of the money, he could jeopardize his benefits. Social Security will still consider a disclaimed inheritance as a transfer of assets and treat it as though your brother received the money.

If your brother has a disability, one potential workaround would be to set up a special needs trust. This type of trust allows the beneficiary to remain eligible for programs like SSI and Medicaid. Your mother could set up a special needs trust for your brother, or he could set one up for himself. It’s essential to consult with an attorney, though, given the many complexities involved.

You can tell your mother and brother about your concerns, but it’s up to them to take action. As the co-executor of your mother’s estate, your job will be to take inventory of her assets and distribute them according to her wishes after any creditor claims have been paid.

Your brother’s financial troubles won’t have any impact on your inheritance, nor will it affect your duties as an executor.

Once you finally get your finances in order, you want to keep them that way. Here are several moves to make now.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].