If you are in debt, you might hope that the creditors will go away after you die. Your relatives shouldn’t have to pay back the debts that you owe, right? Unfortunately, the law does allow creditors to seek repayments of debts from your estate.
How Can Creditors Get Paid from Your Estate?
After you pass away, your executor or representative will gather your assets and distribute them to your heirs. Before your heirs get anything, though, the executor must notify creditors of your death. The creditors can choose to assert claims against the value of your estate.
These claims get paid off before your heirs receive any money. If you do not have liquid assets, like cash, the executor may need to sell things to raise cash for the debts. If your debts exceed the value of your assets, then each creditor will be paid for a portion of his or her claim. But your heirs will receive nothing.
Asset Protection Strategies
There are ways to protect your assets from creditors, even after death. Creditors can only make claims against your estate – that is, everything that you owned individually before your death. Assets owned by a trust or business, or those co-owned with a second person, may be protected from creditor access. However, creditors may be able to access business assets if you were the sole owner, and they could access your portion of co-owned assets in some cases.
Also, there are laws in place to prevent people in debt from “hiding” assets from creditors by changing the assets’ ownership. You must be very careful when setting up asset protection strategies to stay within the law. For that reason, it is often best to think about asset protection before you get into debt. Alternatively, talk to a lawyer to see if you have other options.
As discussed above, creditors can access any assets that are part of your estate. Assets left in trust to beneficiaries that are not your estate, however, are usually protected because the trust owns them, not you. If you plan ahead now by creating a trust, you may save your heirs from disappointment when creditors take a large portion of the assets.
Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.