Working with an experienced estate planning attorney is a great way to help your family. If you are a person who is concerned with your legacy and how you can still benefit your family after you have passed away, then please investigate planning your estate. It is not difficult to do, and it will not consume huge chunks of time. What it can do is provide you with peace of mind and continue to benefit your family after you have died. Interested in learning more about how you can be a blessing to your family now and in the future? Contact lead estate planning attorney Megone Trewick at the Law Office of Bryan Fagan today for a free-of-charge consultation.
One of the major parts of estate planning is to make sure that you can be intentional about as many areas of your life as possible. Having a plan for your money is not selfish- it is wise. Being intentional about your wealth and finances is responsible given how hard you have worked to build your estate and the potential help that your estate can provide to your family- or anyone else for that matter- once you pass on. The ways that you can plan your estate are nearly endless.
Being able to have that sort of autonomy over your estate is why many people choose to engage in estate planning. No question that being able to implement a sound plan when it comes to your estate is better and more beneficial than leaving it up to a probate court judge. However, even people who engage in estate planning can have their estates go through probate. This can happen for a variety of reasons but ultimately, one of the most common is that your estate may have debts that need to be sorted out before property can be distributed to your beneficiaries.
How are debts accounted for in a Texas probate case? Stay with us here on the blog for the Law Office of Bryan Fagan and we will cover this topic in detail today. This blog post is not a substitute for advice from one of our experienced estate planning attorneys, but it is a good place to start your journey towards estate planning or even to add to your existing knowledge. However, being able to meet with one of our attorneys to receive information specific to your situation is ultimately where you need to get to. Please call us today for a free-of-charge consultation where our estate planning attorneys can answer your questions.
Debts- don’t forget about them when planning your estate
Even the most diligent estate planners can forget about a debt from time to time. The reality of the situation is that most of us have at least some debts in our lives. That debt needs to be accounted for before your property is distributed to your beneficiaries. So, if you have credit card debt, personal loans, a loan on your vehicle, or any other consumer debt then today’s blog post from the Law Office of Bryan Fagan is for you.
For starters, if you can then you should focus your attention on paying off that debt. Different people have different theories surrounding how to handle debt and whether paying debt off is even a good idea. Many people hold onto debt reasoning that it is good to make debt payments as much as possible to boost your credit score. Or you may be of the mind that paying debt at a low interest rate is smart when you can use the money you would have utilized to pay down the debt to invest or take advantage of another opportunity with your money.
Whatever your theories on debt and money are, you can rest assured that having debt is stressful and is not something that you should ignore. We see people walk through our office to plan their estates all the time. Without a doubt, one of the most worrying aspects of doing this exercise is handling debt and planning how to deal with debt. The fact is that most of us think more about property when it comes to estate planning than we do about debt. We are working to play offense (building our property) and think relatively little about playing defense (paying off debt and planning for insurance purposes). This is not a unique situation to find yourself in if this is where you are, as well.
To begin with, you need to be able to answer the question of what happens to your debt after you pass away. Does it all vanish into thin air? Does your spouse become responsible for the debt? Do your heirs need to pay your debts out of the portion of your estate that they receive in your will or trust? Another person cannot be made responsible for paying your debts- even after you die. However, those debts (other than federally insured student loans) are still going to exist after you pass away. Those creditors are going to want their money and have a right to be paid back for having loaned you money.
In creating a will, for example, you are required to name someone as the executor of the will. This is the person who will take on the responsibility to execute your wishes and follow through on the terms of your will. He or she should be trustworthy and have a basic amount of knowledge of your life and the people who are a part of it. Were you to pass away with debt then the executor of your estate will be required by a probate court judge to pay that debt before being able to distribute property to your beneficiaries.
Paying off debt and ensuring that creditors are fully made whole is a key part of the probate process. This is overseen by a probate court judge who will review the terms of your will, ensure that it is valid, and then move forward with formally empowering your executor to begin to reach out to creditors to make sure that they are paid out of the body of your estate. This does not mean that your beneficiaries will get nothing, however. What it does mean is that the estate could be diminished significantly depending upon the amount of debt that you have.
Therefore, it is important to be mindful of the amount of debt that you hold as well as your relationship with debt. It is not necessarily the case that you have to pass away with a significant amount of debt. Lifestyle choices can be made, and purposeful decision-making can be the norm when it comes to paying down debt as best as possible. We will cover different methods that you can choose to employ in your life when it comes to debt payment after today’s blog post.
Paying debt during the probate process means that all the property in your estate such as your vehicles, investments, bank accounts, and other assets can be used to reduce the debt or pay it off outright. Whatever the total value of your estate is a determination will also be made regarding how much debt is owed. So long as there is enough value in your state, creditors will be paid in full. However, if your estate’s value is less than the total value of your debt then the executor and the court will work with creditors to divide the assets up according to the order of preference and their place in line as far as debt payment is concerned.
In some situations, your estate planning attorney may be able to work with creditors either on your behalf while you are alive or on your behalf after you have passed to reduce or eliminate debts like credit card debts. Many times, these debts are held by collection companies who will accept pennies on the dollar to pay off an old loan or debt. These are also methods that you can choose to employ while you are still able to. Having an idea of the debt that you owe as well as what avenues are available to pay off this debt is a responsible and practical step that you can take.
Even if you have no plans to pay off debt during your life you should make sure that the executor of your estate is aware that you have debt in your name. Disclosing debt owed to creditors is a responsible step that you can take during the estate planning process. The last thing you want to do is put your executor in a position where he or she is surprised at the type of debt that you owe or the volume of it. Making sure that he or she is aware of all debts that you owe as well as any other important circumstances can be the difference between a positive or negative process for the executor while he or she attempts to settle your estate.
How to handle debt while you still can
Make no mistake, it is not pleasant or fun to contemplate the debt that you owe. Many times, debt is seen as a last resort when we have no other options. For example, consider a situation where you were out of work for a period and needed to borrow money on a credit card to pay bills, buy groceries, and provide for your family. In this type of situation, you may have undertaken some debt out of necessity. Now that you are hopefully out of a situation like that it is time for you to begin to consider what you can do as far as your debts are concerned.
Developing a strategy on how to approach the debt is extremely wise. What you will find is that there are all sorts of methods that people try to educate you on as far as the most reasonable way to pay off debt. Advertisements on television, the radio, and the internet can cause you to believe that debt is possible to be paid off with little to no stress and with little to no effort on your part. However, the bottom line is that paying off debt is rarely easy and does not come about without a plan. The simple truth is that you can wander into debt, but it is very difficult to wander out successfully.
With that said there are some ways to begin to plan an escape from the debt that you owe. This begins and ends with creating a budget that you can live on with your family. In my opinion, it is time to stop thinking about a budget as a straitjacket. A budget does not constrict your spending. Rather, a budget permits you to spend knowing that the money you are spending is well allocated and intentional. If we are being honest with ourselves, much of the time that we resort to debt products for consumer needs it is because of poor planning. Being able to plan your estate successfully means being intentional. The same can be said for getting out of debt.
Do you have an emergency fund in your life? Whenever polling is performed in our country a surprisingly high number of persons answer back that, no, they do not have an emergency fund set aside for rainy day expenses or emergencies. In other words, these folks are living paycheck to paycheck and are not prepared for the twists and turns that life can throw us from time to time. This is another reason why you may have needed to take advantage of different debt products in the past. An emergency fund is a buffer between you and difficult times. Stressful circumstances and no budget mean that debt becomes a much more realistic option. However, when you have a plan and are on a budget you are more likely to have an emergency fund that can buffer you from these kinds of circumstances.
Once you have built up an emergency fund of some sort then you are much more likely to have peace of mind that you need to take on the debt that you owe. There are several strategies that people implement in their lives to pay off debt. One of the tried-and-true methods when it comes to debt payment is to look at the interest rate code on each debt to begin to make progress on the debt that you owe. Essentially, you would take whatever debt has the highest interest rate and begin to take every free dollar that you have in your budget and put it toward that debt. The thought is you want to pay down this debt as quickly as possible because the interest rate compounds over time and can lead to you owing more and more money.
Mathematically, this is the correct approach to take. However, something that you may find when it comes to paying debt is that the process is much more about behavior than it is about math. Of course, there is some degree of math involved given that we are talking about allocating money, basic arithmetic, and compound interest. However, fixing problems with debt is not much different than trying to lose weight or attempting to develop a new skill.
If you are someone who feeds off positive momentum in your life, then paying down the debt which is the smallest that you owe would be a reasonable course of action to take. Rather than taking on the debt with the highest interest rate, paying off the smallest debt first gives you a source of positive momentum in your life. Especially if you are someone who has struggled with paying debt before, and I’ve run into issues with being able to remain on task this would be a great plan for you. You will feed off the positive momentum that you gain when they’re paying smaller debts at first as you build a snowball geared towards paying larger debts at the end.
For those of you concerned with the interest rates and how that factors into the equation the reality of the situation is that if you are intentional about how you pay the debt and can focus on this task as if your life depended on it then you are likely to pay the debt quickly enough where the interest rates don’t matter too much. Hopefully, this provides you with some food for thought when it comes to debt management. Much of the time all we need in life to move forward is a plan. Whichever plan you choose when it comes to debt management know that, in the end, it is either you who will handle your debt, your executor, or your family after you have passed away.
Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan
If you have any questions about the material contained in today’s blog post please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed estate planning attorneys offer free-of-charge consultations six days a week in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of estate planning as well as how your family’s circumstances may be impacted by the filing of a probate case.