Most people work very hard to reduce or even eliminate debt as much as possible. Despite our best efforts, however, most people will have debt throughout their lifetime, including at the time of their death. Debt can range in types from mortgages on real estate, unsecured credit card debt, or medical debt from end of life care. Most people associate estate planning with distribution of assets, but it is just as important to keep your debts in mind when completing your estate plan.
When an estate enters probate, the personal representative (which some people know as the “executor”) is responsible for several actions right away. One of these responsibilities is to identify any debts of the estate. This means the debts that you owe at the time of your death. For the vast majority of debts, the debt is not extinguished simply because you pass away. The personal representative is responsible for identifying the debts owed by the estate and then providing notice to each of the creditors that the probate case is moving forward. The creditors then have a set amount of time to submit a claim to the personal representative. The personal representative will determine whether the debt is a valid and allowable debt. The personal representative is responsible for paying the debts in a very specific order. Minnesota law provides a specific order of priority, with costs of the estate administration being the most important, ranging down to other unsecured debt, such as credit cards.
When creating your estate plan, it is important to keep your debts in mind. You need to understand that the personal representative will only distribute what assets are remaining after the debts are all paid. However, it is also essential to understand that only the assets in the estate will be used to pay these debts. In other words, assets that pass outside of probate will not be part of what the personal representative can or will use to satisfy the estate’s debts. Assets such as life insurance proceeds or assets contained in a trust will pass outside of probate. Accordingly, considering specific types of estate planning instruments can help make sure your beneficiaries receive particular assets.
Call us today at (320) 299-4249 and let us talk with you about your estate and your debt. We can talk with you about how we can help you reach your goals.