Preparing an estate plan that takes care of your loved ones extends beyond your property and your wealth. It also includes debt management. A recent study by Experian found an average consumer debt of almost $62,000 per individual. That’s a lot of money and, after removing mortgages from the figure, it still comes to roughly $13,000 per person.
While the monetary figures are noteworthy, more significant is that 73 percent of those in the study had debt at death. That means three of every four people are leaving the management of that debt to their heirs.
What happens to debt after death?
Most frequently, an estate is broken apart to pay off debts. Instead of leaving a piece of property to a loved one, instead it may be sold to cover an old loan or unpaid bills. Every debt is unique and comes with different limitations. The majority of debt does not transfer to a new individual, but it does have to be settled within the estate before any inheritance is distributed, meaning that your property will not always reach your heirs.
Some loan types are forgiven, many reach an agreement with the estate and others are covered by life insurance or other protections taken by the debtor. Spouses and beneficiaries can bear the heaviest burden of a debt transition.
Different options to protect your estate
For those without an estate plan, the state probate court will settle affairs in a bureaucratic process that does not account for personal wishes. It is expensive, through administrative fees and processes, and is unlikely to follow what you would have intended.
There is more to an estate plan than signing a will to pass on a family heirloom. There are different procedures to make sure your wealth and heirlooms are protected but, just as important, there are also methods to make sure that you don’t burden your loved ones with extra debt, confusion or drama.
An estate plan isn’t about the money or wealth, it’s about the plan. Estate plans protect your assets but, just like in life, some things are more important than money. By creating a unique plan with an estate attorney, you can protect your loved ones even when you aren’t present to tell them how important they are.