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April 27, 2016

Dying With Debt

Greenville SC estate planning

You may think of estate planning only in terms of leaving money or assets to your family and loved ones after you pass away. While you can leave beneficial things to your loved ones, there are also some unbeneficial things that you can leave behind that can harm your loved ones. Often, those with significant debt are hesitant to plan their estates at all. However, an experienced estate planning attorney is able to help you ensure that your debt does not burden your family.

Now more than ever, people are opening debt at older ages and keeping larger amounts of debt as well. With more people in more debt at older ages, there is a higher chance that more people with die with more debt, such as mortgage loans, credit card debts, auto loans, and other liabilities.

A person is considered insolvent if their debts outweigh their assets when they pass. An insolvent estate will not pass its obligations on to the survivors. Debt is not inherited. An insolvent estate is not an issue in this case. However, there are some people who are not insolvent, and their estates could cover their obligations, then creditors will be able to come after your estate for payment.  However, some assets have more protection from creditors as a result of their nature (being directly given to beneficiaries and not going through probate) and these assets are more difficult for creditors to access.  

It is important to keep in mind that transferring assets to protected accounts for the purpose of avoiding creditors is against federal law.  There are things you can do to protect your loved ones without violating federal laws:

 

  • Honesty is the best policy. If you are honest with your heirs about your financial picture with respect to your estate, the estate avoids surprises that can disrupt your heirs, especially those that are living a particular lifestyle under the impression that your estate will provide a particular level of comfort for them.  
  • Life insurance. Money from a life insurance policy can help your heirs pay debt on an item they inherit from you. While debt is usually not inherited, debt associated with an inherited asset can be passed along, such as a mortgage or auto loan.
  • Name an individual as a beneficiary. Instead of your estate, naming an individual as the beneficiary of your IRA or payable-on-death accounts can ensure that those assets do not go through probate, thereby shielding them from probate.
  • Loan protection as an alternative to life insurance. For those for whom life insurance is too expensive, you could consider loan protection insurance, which will pay off any particular loan in the event that you pass away or are unable to pay.  
  • Pay down some of the debt. Even if the amount seems insurmountable, the bottom line is that the less debt you leave to your heirs, the less of a burden the debt has on your estate and on any inheritance to your heirs.

You may think that a large amount of debt precludes you from the need to plan your estate, however you still have a responsibility to do so. The Anderson Law Firm has experienced Greenville, SC estate planning attorneys who can help you determine which estate planning tools are best for your financial situation. Contact us today for help.