Dear Dr. Don,
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I recently purchased a home and moved my elderly mother in with me. She relies on Social Security and has been dealing with old collections from unpaid credit card bills and other debts. What is the best way for me to protect my mother from creditors? I'm worried that if something happens to me, she could lose the home. I'd like to leave my mother the house in my will and make her a beneficiary of my life insurance. But I'm wondering if that would make it harder to collect her Social Security benefits, and I'm worried that creditors would try to take the inheritance.
-- Cheryl Codicil
Dear Cheryl, Your mom should pull her credit reports to see where things stand with her credit accounts. In most states, the credit card debt is no longer collectable once the statute of limitations has expired. That means a creditor can't force your mother to repay very old debts.
In most states, the expiration is between three and six years. Most negative information stays on a person's credit report for seven years, although a Chapter 7 bankruptcy filing stays on a credit report for 10 years.
Collection agencies typically make a last stab at collecting these debts just before the statute of limitations expires. Collection agencies have also been known to try to collect on debts after the expiration, which is why it's important to know where her accounts stand. The clock (calendar) starts with the last payment made on the account. That's why collectors are hoping to get you to make a payment. If you want a debt to expire, don't acknowledge it and don't make any payments.
If you list your mother as a beneficiary of the house and the life insurance policy, it won't impact her Social Security retirement benefits, survivors benefits or Social Security disability insurance. So, you could certainly keep a roof over your mother's head by leaving her the house. But you should evaluate whether she'll have the income to pay the property taxes and maintain the home.
I understand you want her to use the life insurance to pay off the mortgage and other debts. But naming her as the beneficiary doesn't require her to do those things. I'd suggest discussing this with your attorney as you're updating your will. An estate planning solution could work out better for you than your current plan.
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