When you talk to your children about your estate plan, you probably tell them who you want to receive certain property and how you want to split your remaining assets among them. However carefully you plan, your legacy could come apart at the seams if your estate plan does not include appropriate provisions for your personal debt.
When you die, the property that you own becomes the property of your estate. Your responsibilities to your creditors also transfer to your estate unless there are living co-borrowers. Before your loved ones will receive any of your property, your estate must first notify all of your creditors and repay them after they make claims in probate court.
If you don’t plan ahead for your debts, there may not be anything left to the people you love when you die.
You can address your debts in your estate plan
There are several ways for you to address your current debt in your estate plan. You can make sure that you have resources, including life insurance proceeds, sufficient to pay those amounts in full when you die. Of course, you have no way of knowing if you might incur additional debts between now and when you die. There could be major medical costs if you die in a fatal car crash caused by someone without insurance, for example.
You can protect your property from claims by creditors later in life and after you die by creating a trust or changing the ownership of those assets. Asset protection planning will make it much more difficult for creditors to take you to court to place a lien against your property, and it will also exempt some of your property from creditor claims made against your estate after you die.
It is effectively impossible to predict exactly what will happen with your health and your family as you grow older, so even if you believe your dent would not affect your legacy, asset protection planning now can help ensure you leave something meaningful to the people who are the closest to you. Thinking about the big picture when estate planning can help you better achieve the goals that you set for the process.