Maybe you have student loans from college that still have a six-figure balance despite years of making payments. Perhaps you tend to carry a high balance on your credit cards or still owe thousands in patient responsibility costs for recent cancer treatment.
There are many kinds of debt that can strain your budget and potentially result in collection activity. Your debts could also become a concern for your surviving family members if you die unexpectedly. When you understand what will happen with your debt after you die, you may come to realize why it is so important for people to address debts in their estate plans.
Your debt becomes the obligation of your estate
Your credit cards, student loans and other outstanding financial obligations don’t simply disappear after you die. Instead, they become the obligation of your estate.
Any property that you own will become part of your estate and may potentially need to pass through Colorado probate courts. Your creditors with valid claims, ranging from the hospital that treated you to credit card companies, will have a right to bring a claim against your estate for repayment. In fact, creditor claims typically take priority over the inheritance rights of the people that you love.
The personal representative of your estate may have to sell off your property and empty your bank accounts to pay off your debt during the estate administration process.
How planning can help
Every estate plan is different, and the property you own and who you would prefer to inherit that property will influence exactly what strategy you employ. However, changing the ownership of assets is often an important part of protecting your assets in your estate plan.
Moving property into a family limited partnership, for example, can potentially keep those assets out of Colorado probate court and provide obstacles to creditors laying claim to them. Even those who believe that their estate will have sufficient property to repay their creditors and still provide an inheritance for their family members or other intended beneficiaries can benefit from addressing debts in their estate plans.
From moving to shield certain assets to changing the insurance that you carry to ensure there is enough coverage to pay everything you owe in full, there are many strategies that can assist those planning their estates and concerned with what impact their personal debt might have. Recognizing the impact that debt can have on your legacy might motivate you to consider it carefully as you engage in estate planning or review your existing plan to update it based on your changing family circumstances.