Estate planning can be an unpleasant process. You have to think about what would happen if you become very sick or if you die. You often have to spend time thinking about the worst traits and habits of the people you love, as leaving a large inheritance to someone with a gambling addiction could be a big mistake. You also have to be realistic about the last years of your life.
For many people, estate planning involves allocating their assets to people and nothing more. However, testators who only create a last will don’t adequately protect themselves or their loved ones. Your estate plan should consider not just the property you have but also the debts you currently carry and the debts you might incur as you grow older.
What happens to debt when you die?
Whether you still owe money on your mortgage or have thousands of dollars in unpaid hospital bills, your debts don’t just evaporate upon your death. If someone you know co-signed for those debts, they are responsible for paying on them without your assistance.
Even if you don’t have a cosigner, your estate will probably still be responsible for repaying those final debts. In fact, probate law makes it the responsibility of your executor to repay your creditors before they distribute anything to your loved ones.
The courts can compel your estate to liquidate every last asset to repay creditors, ranging from your credit card company to Medicaid if you receive Medicaid benefits to help you cover the cost of nursing home care.
How can you address debts in your estate plan?
There are several strategies that could help you integrate planning for your debts into your estate plan. For example, you could engage in asset protection planning so that certain assets so are not vulnerable to creditor claims after your death.
You might also go through a similar process known as Medicaid planning, which involves diminishing your personal property on paper so that you can quickly qualify for Medicaid without a penalty if you find that you need benefits.
Keeping a close eye on your financial circumstances, protecting your assets, and making sure that your property and life insurance exceeds your debts in value are all steps that can help protect your legacy. Careful estate planning can ensure that loved ones receive your property, rather than Medicaid recovery programs and credit card companies.