Posted by Dana Law Group on August 23, 2022
Estate planning is a necessary process and can be complicated by one carrying debts. When thinking about estate planning, many people only think about the assets they will leave to the heirs. However, it is also critical to understand how your debt can also affect your estate after you die. The lawyers at the Dana Law Group have put together some essential tips about debt and your estate planning.
If you share debt, such as a mortgage, with a family member, it is critical to understand that when you pass away, the person you share the debt with will become entirely responsible for the whole debt. Therefore, ensuring your loved one is financially capable of paying back your part of the financial obligation is vital. Many people take out a life insurance policy to help their loved ones pay off their debt after they pass away.
Your family will never be responsible for any unsecured debt that you may have, such as a credit card bill. However, in the event you have unsecured debt, the debt will still need to be repaid by your estate. Therefore, it is essential to let your family members know that the money they will receive will be less any debts that you have outstanding. Sometimes family members expect a large inheritance because of the number of assets, but they are unaware that significant debts need to be repaid.
Even if you are the only borrower on your mortgage, knowing that any secured debt must be paid back after your passing is critical. If you leave a home to a family member in the will, they can take title to the property and will be responsible for paying the mortgage. If your family member cannot meet the financial obligation, the home will need to be sold. After the sale, your family member will receive the profits after the debt has been paid.
If you have cash and you owe money to any creditors, they can make a claim against your estate in court. The creditors will be paid off prior to any of the cash being distributed to your heirs.
If you are interested in learning more about how your debt may impact your estate planning, reach out to the Dana Law Group today. We will be happy to review all of your assets and debts and work with you to come up with an estate plan that works best for you and your family.