If you’re thinking about creating your estate plan, there are a variety of issues that you have to take into consideration. Sometimes, you may not be sure what to do if there’s debt and how it may affect your estate plan.
According to the Consumer Financial Protection Bureau, debt doesn’t disappear even after a person dies. Sometimes, a person’s estate or that of a loved one can be used to repay debt after the person dies. Therefore, thinking about handling financial issues as you create or modify your estate plan is essential.
Here’s how to protect your estate from debt
Specify who should be paid first
You can use your will or trust to set an order of distribution of your assets. You can also indicate how you would want your debts to be paid. For example, if you want your daughter to get unique family jewelry, writing down your wishes will help ensure that she gets it. In this case, any other assets will be sold to cover your debt according to your instructions.
Purchase life insurance
You can minimize the impact debt will have on your beneficiaries by purchasing adequate life insurance. Once the life insurance is paid out, it will go directly to the chosen beneficiary, and they can use these funds to cover funeral expenses and debts.
Consider joint ownership
Joint ownership is one of the easiest ways to minimize the debt burden to your beneficiaries once you die. For instance, you can have a joint bank account with the right of survivorship. In this case, the funds in your account will be passed directly to your spouse after you die.
Reduce the impact debt will have on your beneficiaries
You can use these three strategies to minimize debt’s impact on your assets and beneficiaries. But if you’re concerned that your estate might be insolvent and your survivors may inherit significant debt, engage in proactive estate planning.