Many people have such significant personal debt that they must commit a portion of their income every month for years to pay it off in full. Student loans, mortgages, medical debts and credit card balances may require concerted efforts to resolve completely. Unfortunately, not everyone will fully repay their personal debts before they die.
The financial responsibilities of an individual become the obligations of their estate after their passing. Those putting together or updating and estate plan in Rhode Island may want to include specific terms to help address their debts in their estate plan. The following are some of the ways that people manage debts through estate planning.
Identifying debts that can impact probate
In most cases, personal financial obligations take precedence over inheritance rights in Rhode Island. During estate administration, the personal representative of someone’s estate could become financially responsible for debts if they do not send proper notice to creditors and pay the debts with estate resources. It is, therefore, important for those planning an estate to identify what debts they may still owe after their deaths. They can include a list of their financial obligations in their estate planning paperwork to make it easier for their personal representative to locate and resolve those debts.
Adjusting life insurance coverage
Many people specifically carry a life insurance policy capable of paying off all of their financial obligations when they die. A life insurance payout could cover the remaining balance on someone’s mortgage, their student loans and even their credit card debt. Occasionally reviewing life insurance coverage and evaluating personal financial responsibilities can help people ensure that there is enough coverage available to pay their debts when they die. They may also need to check and update beneficiary designations for their life insurance.
Protecting assets from posthumous claims
There are several estate planning tactics that can help protect specific assets from liquidation to repay debts during probate proceedings. Assets transferred into a trust do not generally require direct probate oversight and are at reduced risk of liquidation. Similarly, financial accounts and other resources that directly transfer to new owners after someone’s death may also have protection from estate recovery efforts. The extent of someone’s debt, the type of debt they carry and the assets they want to protect will all influence the best strategy.
Recognizing the influence that financial obligations can have on one’s legacy may help a testator more effectively address their personal debts in a Rhode Island estate plan.