People tend to address the most pressing issues when they establish an estate plan. They have to plainly state who they want to receive assets from their estate and what resources they should inherit. They create plans to address their medical vulnerability as they age.
With the right estate planning tactics, testators can establish the foundation of a lasting and meaningful legacy. They can also move through life feeling confident that their loved ones have guidance and support if anything should happen to them.
One personal concern that many people overlook during estate planning is the obligation to repay debts. Any debts left outstanding when an individual dies typically become the responsibility of their estate. Their debts can diminish what their loved ones inherit. How can testators plan to address their debts?
By acting to protect assets
One of the major concerns about personal debt during probate proceedings is the possibility of asset liquidation to cover financial obligations. Personal representatives sometimes have to liquidate resources earmarked for beneficiaries as a way of covering the debts of the deceased.
Asset protection planning can help preserve key resources by changing who owns them or moving them to a trust. People may feel less anxious about their financial obligations when they can protect key resources from creditor claims.
By allocating resources proactively
Some people have money in investment or savings accounts that could fully cover all of their debts. Instead of liquidating their assets to pay debts off immediately, many people invest and save capital as a way of growing their wealth. Individuals who ensure that they have enough capital set aside to cover all of their financial obligations in full can provide clear instructions for their personal representatives to access those funds and settle their debts.
By carrying adequate life insurance
People decide how much life insurance to purchase based on their income and their standard of living. The debts that their estate may have to absorb can be another important consideration. People may choose to purchase life insurance specifically to pay off the principal balance on their mortgages or their graduate school student loans.
There are a variety of different strategies that can work for people in different circumstances. Evaluating legacy goals, sources of debt and current estate planning documents can help people expand their estate plans to adequately address their financial obligations. Testators who plan to pay their debts before they die can help optimize what their loved ones inherit after they pass.
