A History Of Growing Trust In Kentucky

3 ways to safely handle debt in your estate plan

On Behalf of | Sep 19, 2022 | Estate planning

The debts that you owe influence your monthly budget and your lifestyle. If you don’t have your debt under control, it could also play a role in the legacy you leave for the people you love when you die. Your responsibility to repay your debt passes to your estate after your death, and you might even be left at a disadvantage when you retire and live on a fixed income as you grow older if you don’t have your debts under control by then.

The debts that you owe can lead to aggressive collection activity, possibly including lawsuits brought against you during your life and claims against your estate when you die that could force your family to liquidate or sell off all of your major assets, including your home. If you plan ahead now to address your debts in your estate plan, you will have more security as you age and greater control over the legacy you leave behind.

Carry insurance to pay your debts

One of the easiest ways to ensure that you can pay your debt in full when you die is to carry adequate life insurance. Some people carry enough to pay off the balance on their mortgages along with all of their personal debts, like their student loans.

Some people will take out insurance to protect themselves from missing payments if they suffer an injury or develop a medical condition that leaves them unable to work and make payments. Insurance can be a valuable protection against debt as you age.

Engage in asset protection planning

For many individuals, asset protection planning involves identifying their most valuable property and then taking steps to protect those belongings. The property in your name is vulnerable to a civil lawsuit brought against you during your life and will also be at risk if a creditor makes a claim against your estate.

Moving property into a trust makes it harder for creditors to seek that property in civil court, and it is often the most important step when planning to protect your assets.

Make gifts or change ownership now

Strategic gifts during your lifetime can be a way to pass an inheritance to family members now without risking the loss of those assets after you die. You can also plan for a change of ownership without giving someone immediate control.

Transfer on death deeds and special paperwork attached to specific financial accounts can allow real estate and other valuable assets to become the property of someone else immediately after your death without the involvement of the probate courts. That will typically shield them from estate claims after your death but not from creditor claims while you are still alive.

Any of these three strategies or possibly a combination of them can reduce the possibility of  your debts affecting your retirement stability or the legacy you leave when you die. Engaging in proactive estate planning often involves considering your debts in addition to the property you want others to inherit.