There are numerous misconceptions when it comes to creating an estate plan. Often, individuals believe that they must be old, ill or at the end of their life to create an estate plan. That is false, as creating an estate plan early in life can be very beneficial.
Also, many consider an estate plan to be a tool to designate who gets your property and assets after you pass. While this is true, it is not the entire or full truth. When it comes to finances, there are those that are owned and those that are owed. As such, it is important to also consider your debts at the time of your passing when going through the estate-planning process.
While you will not have to worry about your debts after your passing, it is likely your loved ones will. Although some debts will go away when the debtor passes, others stick around and will impact the estate of the deceased.
This matter can be either simple or complex, and it is dependent on whether the estate is solvent or not. While simplicity triumphs when an estate is solvent, the matter can turn rather complex if it is insolvent.
When paying the debts of an insolvent estate, the administrator must follow a specific order when paying off claims. The first priority is the administrative expenses. This is followed by reasonable funeral expenses. Next, the debts or taxes with preference under federal law are paid. The fourth in line is reasonable and necessary medical bills from the last illness of the deceased. This is followed by debts and taxes with preference under state law. The next is the reimbursement of benefit payments. Finally, all other claims are then addressed
All debts are settled with the assets of the estate in reverse priority. This means that it begins with assets passing by intestacy. It is followed by those passing under the residue clause, then assets passing under a general devise and lastly, those passing under a specific devise.
Safeguard your assets
There are various ways to safeguard your assets in your estate from creditor claims. This includes the purchase of life insurance to transfer the risk of unexpected death. Also, by gaining a full understanding of your debts, an estate planner can help you safeguard them while also designating to your administrator how you want them to handle your debt repayment.