When you die, your loved ones will have to clean up your home, settle your financial responsibilities and fulfill your last wishes. The more consideration you give to their needs during that process, the easier it will be for them.
Your estate plan provides them with both guidance and the legal authority they need to handle your estate. Your biggest concerns during estate planning may have been providing for the vulnerable individuals that depend on you or distributing emotionally significant property to specific family members.
Testators sometimes focus so intently on distributing their property that they fail to think about their financial obligations as thoroughly as they should. Your debts will become the responsibility of your estate when you die. The obligation to pay your creditors takes precedence over even the right of your closest family members to an inheritance.
Your debts can detail your estate plans
You want everything you own when you die to go to your children to split evenly. After granting each of them certain belonging with sentimental value, you leave instructions for the sale of your remaining property so that they can split the proceeds. Unfortunately, if your debts are significant enough, much of that property will end up used to repay your creditors.
The representative of your estate may need to sell off your property to repay the debts that you owe. Even Medicaid benefits you receive late in life could lead to estate claims. If you don’t plan ahead to protect certain assets, every last bit of your estate may end up consumed by your obligations, leaving nothing for your children or other loved ones.
How do you address debts in your estate plan?
Earmarking resources to pay off your debt is one solution if you worry about how your family will handle your financial responsibilities. Some people adjust how much insurance they carry to reflect their financial obligations. Others will choose to add trusts to their estate plans or otherwise alter how they hold certain assets to protect those belongings from creditor claims in their golden years and after their death.
Adding a trust to your estate plan can be a smart move if you worry that your debts might diminish the legacy you leave when you die.