Estate plans often contain a variety of different documents each intended to serve a specific purpose. Oftentimes, the main focus of the testator creating or updating their estate plan will be planning for the distribution of their assets after they die. Testators may also put significant effort into their living documents to protect their interests in the event of future incapacity.
Protecting one’s legacy and loved ones by choosing specific recipients is an important estate planning step. However, people often overlook the importance of addressing their debt in their estate plans. Even successful professionals with a six-figure income often have a substantial amount of debt. In fact, those with higher incomes often tend to have higher overall levels of personal debt. Addressing one’s financial obligations in an estate plan is particularly important if someone wants their loved ones to inherit as much as possible from their estate.
Creditors can make claims in Florida probate court
One of the reasons it takes a while for beneficiaries of an estate to receive their inheritances is that the creditors owed money by the decedent have the right to bring a claim in probate court to seek repayments from the estate. Those creditors, including the Medicaid estate recovery program, often take priority over family members and named beneficiaries. In theory, creditors can force the liquidation of estate assets and potentially leave nothing for the beneficiaries someone names in their will.
There are several ways for testators to address their debts. They can set aside specific assets or maintain life insurance to pay their debts in full. They might also move some of their assets into a trust or otherwise change the ownership of those assets to minimize the possibility of creditor claims against those assets later. The scope of someone’s estate, the amount of debt they carry and even their personal relationships will have an impact on the best way to handle those debts in an estate plan.
Seeking legal guidance to thoroughly review financial records can be a good starting point to determine how much debt might pass on to someone’s estate when they die so that they can make plans to handle that debt in order to better protect their loved ones from the loss of their inheritance.