Most people have assets and legacies in mind when they create their Last Will and Testament. However, there are other considerations to deal with when making an estate plan. For instance, the matter of what happens to outstanding debts is an important thing to bear in mind. Your family could be responsible for the balance that you owe depending on the size of your estate and the type of debt.
Creditors Must Be Notified
When a person dies, the executor of their estate is responsible for notifying creditors of their passing. A trust does not require the trustee to inform creditors of the death, but doing so will shorten the process and limit the time period that the people owed have to come forward. Once they are informed, the creditors then have a certain period of time to come forward with a claim against the estate. Debts will then be paid from the proceeds of the estate.
If no estate plan is in place, the probate court will appoint an administrator, who is usually a close relative of the deceased person. Like an executor, this person is authorized to pay debts on behalf of the estate. If no notice is given, then unknown creditors have a period of 7 months to come forward, after which time their claims are invalid.
What Happens if More Than One Person Owes?
Married couples often take on debts such as mortgages together. When this is the case, the debt becomes the responsibility of the living partner or surviving co-signer. There are several factors that determine whether the spouse has to pay debts that are held jointly. In some cases, the sale of an estate is enough to satisfy outstanding debts, and in others, creditors may agree to receive a reduced amount.
How Are Debts Paid?
Creditors are first paid through liquid assets of the estate such as bank accounts and cash. After that, property such as cars, furnishings, and real estate can be liquidated. It’s important to note that creditors are not allowed to go after 401(k) retirement plans or life insurance benefits.
An estate planning lawyer can help you shield assets from creditors by placing them in trust. If an asset is payable to the estate, it can be used to pay off claims on the estate’s debt. This is why many people opt to put some of their assets aside when making an estate plan.
Many Americans carry outstanding student loan debt, but fortunately, it can often be discharged. Federal student loans are no longer owed after the primary borrower dies, even if there is a co-signer. Privately held loans may become the responsibility of the co-signer or estate, however.
Planning for the future can be complex when debts are involved, but with the right advice your family can be protected. For help creating an estate plan that takes possible debts into account, contact the offices of Queens probate lawyer Richard Cary Spivack, and take the first step.