There are certain estate planning considerations that most people recognize. Parents with young children may decide to create estate plans specifically to ensure the safety and well-being of their children. They provide financial support and name a guardian.
Those with valuable assets or complex family situations may establish estate plans to prevent their loved ones from fighting over their resources after they die. People in unusual circumstances, such as those in committed relationships that do not lead to marriage, may also need to create estate plans to protect their loved ones. What people often overlook is the need to address financial responsibilities as well as the need to provide for loved ones and address personal resources.
Debts pass to an estate
The property directly owned by an individual becomes the property of their estate when they die. Any debts that they did not resolve while alive become the responsibility of the estate. The estate also has to cover the costs of their end-of-life care and their funeral, burial or cremation.
Typically, the personal representative of the estate must pay any debts owed by the decedent before they distribute resources to their beneficiaries. The debts owed by an individual can significantly diminish or entirely consume the assets in their estate. Proper planning to address debt can help people preserve resources for their loved ones.
How do people plan for debt?
Estate planning for debt can take on many different forms. In some cases, testators invest in life insurance policies sizable enough to pay off their mortgages, student loans and other known debts. They provide instructions for their personal representatives that address the need to pay specific debts.
Other times, testators may seek to protect assets instead of arranging to pay debts directly. They may establish a trust as a means of preventing creditors from making claims against their resources. Other times, they might add co-owners to major assets while they are still alive to prevent those assets from becoming part of their estate after they pass.
Reviewing personal financial obligations with a skilled legal team can help ensure that an estate plan adequately addresses personal debts. Testators who address their debts ahead of time can help maximize what their loved ones eventually inherit.