If you have significant credit card debt, you may wonder if the debt will affect your estate planning or if it will cause problems for your heirs. Not accounting for money you owe on credit cards could have surprising consequences. As a result, your estate plan may need to factor in your credit card debt and try to minimize its impact on inheritances.
Will Credit Card Debt Stick Around After Death?
Your debts unfortunately do not simply disappear after you pass away. Credit card companies still want to collect their money, whether it is from you or from your estate. In Illinois, the probate process for distributing estates allows creditors to make claims against an estate. They must receive notice of the debtor’s death from the executor, and then they have a limited time period to assert their claims to the court.
In addition, creditors can seek repayment from co-account holders. Surviving co-account holders still have the obligation to make payments on the credit card debt after one account holder passes away.
Will Credit Card Debt Reduce Inheritances for Your Heirs?
Provided that an estate has enough money, the executor will have to pay off the creditors before distributing inheritances to heirs listed in the will. Any creditor who made a valid claim will receive a payment from the estate. The heirs would receive whatever is left over in the estate. If the total estate assets are not large enough to pay all the debts, then the executor will make partial payments to creditors. However, the heirs would receive nothing.
How Can Estate Planning Help with Credit Card Debt?
If you have substantial credit card debt, you may want to take advantage of estate planning structures that protect assets from creditors. For example, properly drafted irrevocable trusts remove assets from your probate estate. As a result, the executor cannot use the assets to pay back creditors, and the creditors cannot levy them.
Further, you can make lifetime gifts to your chosen heirs instead of gifting in your will. Doing so gets the money directly to the heirs without the requirement of probate. Other estate planning structures and techniques can achieve similar results. If you have credit card debt and are concerned about its effect on your family and heirs, consider how an estate plan can help.
In debt and 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.