Your personal debts will have a major impact on your legacy

Published By | Jan 18, 2022 | Estate Planning |

There are many rules that apply to your financial obligations both during your life and after your death. You may think that your personal debts will cease to matter when you die, but they can have an impact that persists long afterward.

Even if you have no co-signers for your accounts, they can diminish what you leave for your loved ones when you die without careful planning. Thinking about your current and possible future debts can be an important part of estate planning.

Creditors of all sorts can make estate claims

Probate laws require that executors pay off creditors and tax obligations before they give any of your property to your loved ones. Anyone that you owe money, ranging from someone who filed a civil lawsuit against you to your credit card company, can make a claim against your estate if you did not pay the debt off before your death.

Your executor will then have to use your assets to repay those debts before they can give anything to your closest loved ones. Even Medicaid could make estate recovery claims for any treatment you received in your last years of life. Asset protection planning now will protect you from creditor actions as you get older and protect your estate after you die.

What is asset protection planning?

When you directly own certain property, those assets are vulnerable to claims from other parties. Both creditors and those with valid personal injury claims against you could try to seek some of the equity you have established in your home or ask for a garnishment of your bank account.

If you fall behind on payments due to a medical emergency, your creditors could take action against your property. Those same assets will be at risk of forced liquidation after your death unless you act now to preserve them.

Asset protection planning often involves changing the ownership of certain assets or the way that you hold them to protect them from creditor claims. Moving property into a trust is a common strategy employed by those hoping to protect their most valuable assets from creditors’ claims later in life and after they die.

Thinking about your current and possible future financial needs can help you create an estate plan that protects you now and the people you love after your death.