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What your debts could mean for your loved ones when you die

If you don’t have any co-signers on your debts, you might ignore them when planning your estate. People often mistakenly assume that a debt dies when they do unless there is a co-signer.

In reality, the debt remains valid regardless of whether or not you are alive to repay it. The debts you don’t address while estate planning could diminish your assets and affect the lives of your family members.

Creditors can drain your estate

Whether you have hospital debt from cancer treatment or massive credit card balances, the companies that you owe money to will want to get paid back after you die. The law provides creditors the right to bring a claim against your estate for repayment.

They can do this in a number of ways. They can claim the balance in your bank account. If you don’t leave behind enough liquid capital to repay the full balance owed, they can force your estate to sell assets to repay them. Individual creditors or even government insurance programs might place a lien against your house to prevent your executor from selling it without paying them first.

After handling all of those debts, your estate may not have anything left to take care of your spouse, your children or your other loved ones. Your executor could face consequences if they distribute any of your assets without paying your debts first.

Protection planning when drafting an estate plan can help reduce creditor claims against your estate. You might move assets in to a trust or change how you hold them to limit the ability of businesses to clean them after you die. Your estate planning attorney can provide suggestions and help you choose the option that’s best for you and your family.