When you decide who receives your personal possessions, you probably make those decisions based on the personalities of your beneficiaries and your relationship history with them. Although you may consider and try to balance the financial value of those assets, the attachment of different family members to those belongings will influence your decisions more than the price in many cases.
You may invest great consideration into the big decisions about your assets. Unfortunately, it may be the financial value of those assets that ultimately matters the most, especially if your creditors make claims against your estate and you don’t have enough liquid capital to repay them all.
Probate proceedings allow creditors to make financial claims
When your executor initiates the probate process, they will provide a copy of your estate plan and documents about the assets in your estate to the courts. They will need to notify your individual creditors about the probate proceedings if they know about the accounts. Typically, executors also publish a notice about probate proceedings so that unknown creditors can also make claims.
In most cases, executors have to fully repay creditors before they can distribute any inheritance to the beneficiaries named in an estate plan. The requirement to repay debts supersedes the rights of other individuals to inherit property from the deceased.
The executor may have to liquidate bank accounts and even sell real estate to repay creditors. If they try to distribute assets to your family members without paying your debts first, those creditors could hold your executor personally responsible for the value of the assets that they inappropriately distributed.
You can plan ahead to reduce that risk
While you may not be able to completely eliminate your personal debts before you die, you can make changes to your estate plan that reduce the risk of creditors making claims against your major assets as you grow older or after you die. Asset protection planning can be an important step in the creation of an estate plan that leaves meaningful inheritance is for your closest loved ones.
Exploring how to protect the assets that you have while estate planning can help ensure you pass something on to the people that you love when you die.