Debt is part of modern life. The average person has multiple credit cards and finances their biggest investments. People use mortgages to buy homes and student loans to obtain a college education. They then spend years paying off their debts.
In some cases, people die before they have fully repaid their financial obligations. The debts that someone owes can cause major challenges for their loved ones after their passing. Most debts take priority over inheritances in probate court. Thankfully, it is possible to plan in advance to address debts after someone dies. For example, the following strategies are some of the most common used to address debts in an estate plan.
Acquiring life insurance
Someone with major financial obligations may worry about the stability of their household after their passing. Maybe someone owes six figures in student loans because they work as a professional and attended graduate school. Perhaps they purchased a home and still have more than 20 years of payments due on the property. Carrying sufficient life insurance helps provide the necessary financial support for family members after someone’s death. An adequate policy can pay off someone’s student loans or mortgage so that their loved ones can inherit from their estate without risk.
Creating an asset protection plan
Individuals who recognize that their financial obligations could undermine their legacy can take proactive steps to address the issue. An asset protection plan might involve the creation of a trust or changing how someone holds their most valuable assets. Successful asset protection planning can protect someone from a lawsuit later in life and may reduce the likelihood of creditors taking legal action against their estate after their passing.
Budgeting for prompt repayment
Particularly when people begin preparing for retirement, they may want to be assertive about reducing their financial obligations. An aggressive budget plan that seeks to pay down and eliminate debts in the next five to 10 years can help people prepare for retirement and reduce the likelihood that their debts could affect their loved ones even after they die.
Careful estate planning can benefit not just a testator who is drafting documents but also the people whom they love the most. Ultimately, recognizing the impact that debt can have on an estate could help someone establish a more meaningful legacy.
