Do you have a goal to leave a sizable legacy to your children, grandchildren and other loved ones? Maybe you want to leave an inheritance that your grandchildren could use to pay for college. Or perhaps you want to leave a nest egg for your children to use to fund their retirement. Whatever your specific objectives, it’s natural to want to help those who are closest to you.
However, you may have found that funding retirement is a bit of a challenge. Perhaps you’ve relied on debt to fund living expenses or pay for things like medical bills. Maybe you’ve used credit cards or even refinanced your home. Or it’s possible you might have co-signed loans for your children or other family members.
Could these debts impact the legacy you leave for your family? It’s possible. While it is unlikely that your debts could be passed directly to your children, it’s possible that some of your debts may have to be paid from your estate assets. That could reduce the size of your legacy.
Below are a few types of debt commonly held by retirees, along with a description of how they may impact your estate. If you hold any of these types of debts, you may want to develop a strategy to limit their impact on your estate.
When you pass away, your estate will go through a legal process called probate. During this time, the court and the executor of your estate perform certain functions such as liquidating assets, contacting heirs and more.
Filing a final tax return is one of the primary tasks in probate. Your estate will have to pay income taxes for the final year of your life, and the estate may also have to pay any back taxes that have accrued. If you owe money for unpaid taxes, fines, penalties or more, your estate may have to pay those bills before assets can be distributed to your heirs. In fact, your heirs may have to liquidate certain assets to pay the bills. If you have tax debt, you may want to develop a strategy to minimize the balance before you pass away.
Credit Card Debt
It’s generally unwise to carry sizable credit card balances in retirement. The fees and interest rates associated with credit cards can be a drag on your financial stability. However, you may find yourself in challenging financial situations in which credit cards are your only option.
Unsecured credit card debt generally is not passed on to children or other family members unless they are named on the account. Assuming your loved ones aren’t on the card with you, your estate will have to pay the outstanding balance. Like tax debt, credit card debt may have to be paid before your heirs can receive assets from the estate.
It’s not uncommon for retirees to accrue debt related to medical expenses and long-term care. If you pass away with outstanding balances on medical debt, those bills will fall to your estate. The creditors for medical debt can file liens against your estate assets to make sure the debt is paid. A strategy to consider would be to use funding vehicles such as health savings accounts, supplemental Medicare insurance and long-term care insurance to minimize your out-of-pocket medical expenses.
Student Loan Debt
Think student loan debt isn’t an issue for your estate? You may want to reconsider. Even if you don’t have student loans yourself, student loan debt could cause a problem for your heirs.
If you co-signed student loans for a child, the creditor may be able to ask for payment for the outstanding balance after you pass away. It’s possible that they may let the child continue making payments on the loan without a co-signer present. If the creditor doesn’t allow that option, however, your estate may have to pay the balance of the student loans.
How can you protect your loved ones in your legacy from debt? Clearly, the best protection strategy is to minimize your outstanding debt balances. If you can afford to pay down debt, it may be wise to do so. You also may want to consider maximizing your use of tools that have a beneficiary designation, like life insurance, IRAs, annuities and more. These types of financial tools are usually protected from creditors.
Ready to plan your legacy? Let’s talk about it. Contact us today at MasterPlan Retirement Consultants, Inc. We can help you analyze your needs and create a strategy. Let’s connect soon and start the conversation.
Master Plan Retirement Consultants proudly serves the financial needs of those in the metro Atlanta, Georgia.
Investment advisory services offered through MasterPlan Retirement Consultants, Inc. a Registered Investment Advisor in the state of Georgia. Insurance products & services offered through Fricks and Associates, Inc. MasterPlan Retirement Consultants, Inc. & Fricks and Associates, Inc are affiliated companies.
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Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
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