An estate planning attorney can play a crucial role on several fronts in managing your debts after your passing.
For one, an estate planner can work with you during your lifetime to establish trusts or designate beneficiaries that can help to protect certain assets from creditors. After your death, they also can guide your heirs through the probate process, helping them understand their rights and responsibilities regarding your debts.
In addition, you can work with an estate planning lawyer to create a comprehensive estate plan that not only outlines how you would like your money and property to be divided among your loved ones, but also ensures that, wherever possible, your heirs are not burdened with your debts.
This support can alleviate stress during a difficult time, allowing your loved ones to focus on honoring your memory rather than dealing with financial complications.
What You Can Do With Your Will
While heirs generally cannot inherit debt, debt can reduce what they receive after you have passed away.
The main purpose of your last will and testament, a crucial piece of any sound estate plan, is to direct where your assets will go after you die. You can also use this legal document to instruct your heirs on how to pay your debts, designating which of your assets will be used to do this.
This can help ensure that your heirs receive their inheritance without the burden of your financial obligations. By clearly outlining these instructions, you provide clarity and protection for your loved ones during a challenging time.
Secured or Unsecured Debt?
If someone dies with outstanding debt, the executor is responsible for ensuring that those debts are paid. This may require selling assets that you would have otherwise liked to leave to specific loved ones. You can leave behind two types of debts:
- Secured debt is debt that is attached to a piece of property or an asset. Common types of secured debt are car loans, mortgages, or home equity loans.
- Unsecured debt is any debt that isn't backed by an underlying asset. Unsecured debt can include things like credit card debt, student loans, or medical bills.
When you leave to your heirs an asset that has debt attached to it, the debt remains. Your heirs may be able to opt either to continue paying on the debt or else sell the asset or property to pay off the debt. You may worry that this would cause an unnecessary burden for your loved ones. If so, you can leave them assets in your will specifically designated to pay off the debt.
With unsecured debt, although your heirs will not have to pay off the debt personally, the executor will have to pay the debt using estate assets. This could mean a lower inheritance for your loved ones. Again, you can specify in your will which assets to use to pay these debts.
For example, suppose you have a valuable collectible that you want one of your heirs to have. You can specify that the executor use assets in your bank account to pay any debts before selling the collectible. And if you plan to leave liquid assets, like a bank account, CD, or stocks to an heir, you should designate in your will what you would like your executor to use instead to satisfy debts.
Work With an Estate Planning Attorney
Not everyone needs to specify how to pay debt in their will. If your debt is negligible or your entire estate is going to just one or two people, it may not be necessary. Keep in mind, too, that laws can vary from state to state regarding wills, probate, creditors, and other aspects of estate planning. Contact an estate planning attorney in your area to come up with a plan for handling your debts.
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