2 options for debt in an estate plan

When making an estate plan, it’s important to deal with debt as well as assets. Your assets will get passed on to the next generation, and you can use your estate plan to do this. You could put financial assets in a trust, for instance, or just leave them to someone in your will.

But, what happens to the debt you leave behind? One option is to pay it down in advance. As you grow older, especially if you’ve had any serious medical issues – like an Alzheimer’s diagnosis – then you may want to start paying off some of your long-term debts. It’s helpful for your beneficiaries if you leave them a family home without a mortgage, for instance. If you pay down significant debts, the beneficiaries don’t have to think about it and they can just divide the assets.

What about debts that can’t be paid off?

Unfortunately, you can’t pay everything in advance. For one thing, you could pass away unexpectedly. But even if you know it’s coming and you try to plan an advance, there are still just basic costs and bills that someone will have to handle. These could include utilities, property taxes, insurance, income taxes, credit card bills, medical costs and much more.

The second option, then, is to talk to your estate executor, as it will be their job to make these final payments out of the assets left in your estate. You could even consider setting up a fund specifically for them to use at this time – like a Payable-On-Death account. The executor doesn’t have to personally pay off your debt, but you can make it easier for them to access the money that they need in the estate to handle the debt before distributing assets to the other beneficiaries.

Planning for debt is just one part of drafting an estate plan. Be sure you know what legal steps to take.