After you pass, your debts, just like your assets, are left to your estate. It is important that you make sure that the assets you set to leave behind do not get eliminated entirely by your debts. Understanding debt and how each kind differs is important when developing your estate plan.
One of the first steps in estate planning is to name your executor, who will be the individual responsible for dealing with your will and estate after your death. They will use your assets to pay off your debts, but if there isn’t enough to cover everything, they may be out of luck. Debt from credit cards or student loans is not secured by assets like in the way mortgages and car loans are. Once the estate uses up all the assets, the credit card companies are often out of luck. This is unless there is any joint account holder on the card, as they would assume responsibility for the bill.
Therefore, it’s extremely important for you to understand the different kinds of debt, and for you to know what’s protected. In most cases, creditors are not allowed to go after retirement accounts or life insurance proceeds. These go straight to the named beneficiaries and are not a part of the probate process. However, if the person named as a beneficiary is dead, the benefits may go into your estate and thus become subject to creditors. That’s why it’s crucial that your policy names the proper individual(s) as the beneficiary.
The last thing you want is for your hard-earned savings to go to the government when you pass, or to a family member that you don’t want it to go to. All too often, survivors will have to repay debts and be burdened with bills instead of the inheritance that they deserve. And, in most cases it’s avoidable! Not only can estate planning help you avoid creating a burden, but it can also help you prepare a tax-advantaged gift for your loved ones.
Contact us today and we’ll set aside time on our calendar to discuss your personal situation as it relates to the estate planning process.