When you think about your death, you may worry about the people that you love and think about the needs that they have that may go unmet when you’re no longer there to provide for them. You may also consider the resources you have acquired during your life and who you hope will inherit that property.
If you are like most people, you may not have thought much about your personal debt while creating an estate plan. It is normal for people to focus on beneficiaries and assets rather than financial obligations. However, if you understand what happens to your debt when you die, you will surely recognize why it is so important to address outstanding financial responsibilities in an estate plan in a proactive fashion.
Your debts don’t just disappear when you die
If you don’t make advanced plans for your property to transfer to others before or immediately after your death, those assets become part of your estate. A similar set of rules applies to the financial obligations someone has when they die. Your debts become the obligation of your estate, and your executor or personal representative will need to use your property to pay those debts before they transfer anything to your family members.
If you don’t address your debts and protect your assets before you die, the people that you expect to inherit your property might not receive anything at all. Most personal debts, including even Medicaid recovery efforts, will take precedence over inheritance rights in almost all scenarios. The executor of your estate may have to sell off every last asset in your name to pay off your credit card balances and medical debts after you die.
Asset protection planning helps
It is possible for people to create plans that will protect their assets from creditor claims both later in life and after they die. Moving property into a trust or otherwise changing how you own it can make it harder for outside parties to make a claim against that property.
Asset protection planning early in retirement can also potentially help you qualify for Medicaid later in life if such benefits become necessary. A thorough review of your financial resources and current obligations can help you develop a plan that will maximize your protection and what you pass to the next generation.
Thinking about the legacy you want to leave and your current circumstances can help you create a more effective estate plan. When addressing these circumstances, you’ll want to seek legal guidance concerning how best to navigate concerns related to both assets and debt.