Are you thinking about your legacy and how you will pass your assets on to your loved ones? That’s a common concern for retirees and those entering the later stages of life. You may want to help your grandchildren with their education or perhaps pass assets with sentimental value to your children.
A written estate plan can help you achieve these goals. Your estate plan should prioritize your objectives and offer a strategy, as well as identify risks and challenges. Some potential roadblocks include taxes, end-of-life costs and even probate expenses.
One risk you may not have considered is debt. While you may have made efforts through your life to minimize debt, sometimes it can’t be avoided. Unexpected costs always arise, even in retirement. You could have credit card debt, mortgages, medical bills and more.
It’s possible that your debt could impact the amount of assets that are distributed to your heirs. When you pass away, your estate could pass through a process called probate. That’s the legal process for settling an estate, and it often includes tasks like notifying heirs, liquidating assets and distributing inheritances.
One primary probate task is the settling of debts. You could have credit card balances, mortgages, car loans, or even debt related to medical treatment or long-term care.
Fortunately, there are steps you can take to minimize the burden of your debt and protect your legacy. Below are three steps to consider. If you have debt and are worried about its impact on your estate, consider implementing these action items in your estate plan.
Take action to eliminate debt.
One of the best ways to prevent debt from impacting your estate is to minimize your outstanding debt before you pass away. For example, if you have credit card debt, consider developing a strategy to pay it off. If you owe money for past medical treatment, call the provider and negotiate a payback plan.
Also, don’t forget about loans on which you may be a co-signer. For example, did you co-sign your children’s student loans? If so, the lender could demand that the balance be paid after your death. You may want to work with your child and the lender to see if you can be removed as a co-signer so the balance doesn’t hold up your estate distribution.
Provide liquidity for your estate.
Sometimes in estate settlement, it’s not the debt that is a problem. Rather, it’s the lack of liquidity available to pay the debt. If much of your estate consists of illiquid assets like homes, property, businesses, or collectibles, your estate executor could face a challenge in paying your outstanding debt. He or she may have to sell those assets to generate liquidity to pay your balances.
You can minimize this risk by creating liquidity for your estate. Consider using life insurance as a tool to leave cash for your heirs. If you can’t qualify for life insurance, work to create a reserve of cash.
Take advantage of creditor-protection tools.
There are a number of financial tools that offer protection from creditors. Many of these tools are beneficiary-designated products such as life insurance, annuities, IRAs and trusts. These types of assets flow directly to the named beneficiaries without going through probate. That means these accounts can’t be impacted by liens, garnishments, and other collection tactics. You may want to maximize the assets in these accounts so your heirs can receive their distributions quickly, without waiting for your executor to settle outstanding debts.
Ready to plan your legacy? Let’s talk about it. Contact us today at Carstens Financial Group. We can help you analyze your needs and create a strategy. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
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