Kansas and Missouri Estate Planning

Does Credit Card Debt "Die" When I Die?

Your debt may outlive you.

Death and debt.

These topics are often avoided.

Few people really want to consider the brevity of their lives.

Nobody wants to dwell on the strain of their debt.

According to a recent U.S. News & World Report article titled “What Happens to Credit Card Debt When You Die?,” the cruel reality is you may die before your debt expires.

If you have been frugal in life, you may leave your children with an inheritance when you die.

If you have a hefty debt, you may leave debt instead.

Your estate is responsible for paying off your debts when you pass away.

If your debt is large, it may deplete all assets in your estate.

What if your estate assets are not sufficient to cover your debt?

Will your loved ones be responsible to cover the remainder of your bills?

This depends on a few factors.

Was your loved one a co-signer?

Was your property or business owned jointly?

Did you die in a community property state?

If your spouse jointly owns a credit card with you, he or she must continue to make payments.

Entangling your loved ones in your debt is doing them an unkindness at best.

To save them from this, you should work on paying down your debt as soon as possible.

What if you cannot?

How are the debts paid after you die, generally speaking?

Your last will and testament is submitted to begin the probate process, usually by your executor.

Even if you have no last will submitted to probate, a creditor can even open a probate of your estate.

Either way, the probate court will ultimately oversee the just settlement of your financial affairs.

The executor is responsible for paying the creditors and settling your estate.

On the other hand, if you had no will nominating an executor of your own choosing, the court will choose an individual to administer your estate.

Certain assets may be protected.

For example, life insurance policies paid directly to the beneficiary.

They will not be included in the assets available to pay bills.

Debts are actually settled in an order of priorities under state statute.

The top priorities are secured debts like car loans and mortgages.

Attorney and administration fees are paid next.

Last to be paid are unsecured debts like credit card debt.

There are ways to protect some assets for the benefit of your children.

Work with an experienced estate planning attorney and financial planner to pay down your debt and help provide security for your family when you pass away.

Reference: U.S. News & World Report (August 19, 2019) “What Happens to Credit Card Debt When You Die?”

What are Some Practical "Asset Protection" Moves for Kansas and Missouri Physicians?

Lawsuits can take a toll on assets and savings.

You are a physician.

You entered the field wanting to help others.

When you were young and idealistic, you did not realize the ever present danger of malpractice suits.

According to a recent Physician Sense article titled “The Dos and Don’ts of Asset Protection for Doctors,” most doctors will be sued at some time if not already.

You should take steps now to protect your personal assets.

If you do it later, the court may rule against your actions as being fraudulent.

What should you do?

For starters, make sure you have malpractice insurance.

Many states require its doctors to carry this if they are going to practice in the state.

This insurance covers damages up to a certain amount.

You should also place money in protected accounts.

These include qualified retirement accounts like a 401(k) or profit-sharing accounts.

But laws differ by state.

For example, assets held jointly by spouses in Missouri are deemed to be held as tenants by the entirety.

In short, the law considers such assets to be owned 100% by each spouse.

The result?

A malpractice suit against the doctor spouse cannot reach the 100% interest of the non-doctor spouse.

In Kansas, your personal residence is considered your "homestead" and is protected, as is life insurance owned for at least one year.

You should also protect yourself from life issues outside of your line of work

You should have disability, auto, and homeowners insurance.

Do you have a personal "umbrella" insurance policy as part of your homeowners insurance?

If no, then you should.

Every day you work to preserve the lives of others.

Take the time now to protect you and your loved ones.

Reference: Physician Sense (August 7, 2019) “The Dos and Don’ts of Asset Protection for Doctors”

How can I Help Protect My Retirement from a Recession?

Recessions are killer to retirements.

Do you remember 2008?

The recession hit many Americans hard.

That recession, like most, impacted those nearing or in retirement the most severely.

In fact, nearly $2.4 trillion disappeared from retirement funds for American almost overnight.

Yikes!

According to a recent Money article “This is the Best Way to Recession-Proof Your Retirement, According to Experts,” a similar situation in the future is not impossible.

In fact, future recessions should be expected.

Can you protect yourself in a downturn?

Do you look particularly fetching wearing a barrel and suspenders?

If no, you can certainly take steps to set yourself up to make it through without becoming destitute.

What are they?

Create a cushion.

Emergency funds are important no matter your life stage.

How much should you save?

The commonly recommended amount is to have at least three to six months of expenses saved, preferably in cold hard cash or its equivalent.

Even if your retirement savings are large, removing money early to survive will incur penalties and decrease future gains.

Keep your emergency funds separate, yet accessible.

Minimize debt.

In retirement, you will be living on a more fixed income.

You do not want to deal with debt or creditors, especially in a recession.

Start paying down your debt now.

To prioritize, start with the highest interest rate debt.

You can cut discretionary expenses to pay make these payments.

Also, in a recession, you can opt not to pay for a vacation, but a mortgage payment must be paid.

If you do not believe me, just blow off the mortgage payment for a few months.

You will need the barrel and suspenders, if you do.

Consider tweaking your investment portfolio

Your investment needs will change as you near retirement.

The closer you get to retirement, the less exposure you will want to market volatility.

If you have unnecessary risk, get rid of it.

You may still need some stocks to out-pace inflation, but you do not want too much where the risks are greater than the rewards.

Working with an experienced financial advisor can help you adjust accordingly.

Apply for part time jobs.

Having a job can give purpose to your day.

It can also provide funds so you do not draw down retirement accounts more quickly than necessary.

Working may impact taxes and Social Security, so you may want to research the impact before you accept a job.

Set up an estate plan.

A recession is not an excuse to neglect estate planning.

The heavy financial burden of a recession will be made worse for your loved ones if you do not have your affairs in order.

Taking steps to protect yourself now will only help you later should a recession rear its ugly head.

Reference: Money (March 13, 2019) “This is the Best Way to Recession-Proof Your Retirement, According to Experts”

What Are Some Reverse Mortgages Gotchas?

Reverse mortgages are not a risk-free endeavor.

Many people in retirement find themselves in need of more cash.

Cash can be hard to come by after you have finished working.

Many people turn to reverse mortgages.

According to a recent Arizona Central article titled “Reverse mortgages can cause problems when spouses, heirs aren’t on board,” you should measure whether the risk is greater than the reward.

How can you do this?

First, start by understanding the how reverse mortgages work.

They essentially allow a homeowner to tap into their home equity.

This loan does not need to be paid back until one of two events occurs.

What are they?

The first is the death of the homeowner.

The second is when the homeowner moves from the home permanently.

The borrowed amount must then be paid in full.

How can this be done?

You or a family member may pay the bill.

The property may also be sold within a time window in order to satisfy the debt.

This can put your spouse and your heirs in a tough spot.

If your spouse or heirs were expecting to live in the home and are unable to pay, they may be evicted or face other legal challenges.

Yikes!

This can be made worse if family members were unaware of the reverse mortgage and were not informed moving may be required.

How do you avoid this?

Be honest.

Tell your loved ones about the reverse mortgage and explain its implications.

Your spouse may assume he or she may continue to live in the home.

This is not to be assumed.

The federal Department of Housing and Urban Development may provide insurance for reverse mortgages and allow your spouse to remain even if not listed as a co-borrower, but this is not the outcome in all situations.

Can your heirs simply pay off the bill?

Yes, but this can leave them in trouble financially.

Should the home be in bad shape, it may require costly fixes before it can be sold.

Does this mean a reverse mortgage is never a good idea?

No.

They can protect retirement accounts and large unrealized gains on the property.

Reverse mortgages should not entered into lightly.

Working with an experienced financial planner can help you make the best decisions for your family.

Reference: Arizona Central (June 12, 2019) “Reverse mortgages can cause problems when spouses, heirs aren’t on board”

How Will My Debts Be Settled By My Estate?

Debts payments are a part of the probate proceedings.

You have debt.

Maybe it is from credit cards.

Perhaps it involved a mortgage.

It may even include health care costs.

What happens to these debts when you die?

According to a recent The Balance article titled “Dealing with Debts and Mortgages in Probate,” this depends on your estate plan.

Let us say you did not create a revocable trust.

Instead, you died with a simple will or you died with no legal plan in place.

Your estate will pass through probate.

Before your chosen heirs or the heirs designated by state law can receive a penny, your debts must be settled by the executor of your estate.

Does your executor have to wait for probate proceedings to start before he or she deals with debts?

No.

How does one start?

Begin by listing all liabilities.

What should you include?

• Car or boat loan
• Cellphone bills
• Credit card bills
• Condo feeds
• Federal and state income taxes
• Home equity loans
• Lines of credit
• Loans against life insurance policies
• Loans against retirement accounts
• Mortgages
• Personal loans
• Property loans
• Reverse mortgages
• Utility bills

Once you have this list, you can categorize them.

How so?

You should divided into administrative and final bills.

What are these?

Administrative bills involve condo fees, mortgages, property taxes, and utility bills.

Essentially, these are bills ongoing during probate.

Final bills involve income taxes, credit card bills, personal loans, cellphone bills, and loans against life insurance policies or retirement accounts.

Note: all debts, taxes, and expenses are paid off only while the probate estate is open.

These bills should be paid from the estate by the executor.

They should not be paid out of the pocket by heirs or the executor.

The one exception would be if an heir wants to keep an asset, such as a home or car, and continue to pay down the debt.

The executor must choose the bills to pay and the assets to liquidate to pay the final bills.

Note: No debts, taxes, or expenses of the estate should be settled without the counsel of the attorney assisting with the probate.

The process will be especially difficult if you die intestate with no will.

How can you simplify all of this "administrivia" for your executor and your beneficiaries?

You should create a comprehensive estate plan with an experienced estate planning attorney.

He or she will help you create a plan to meet the needs of your family and makes life easier on those you leave behind.

Photo Credit: By Host Reviews UK, a web hosting review and comparison site.

Reference: The Balance (March 21, 2019) “Dealing with Debts and Mortgages in Probate”

Does Life Insurance Fit into My "Middle-Income Boomer" Estate Plan?

Retirement may be stressful for many Baby Boomers.

Are you a Baby Boomer?

Do you have a loved one in this demographic?

If yes, your retirement may hold some harsh realities.

According to a recent Insurance News Net article titled “How To Use Life Insurance In Better Estate Planning,” many Baby Boomers in the middle income bracket have a debt problem.

In fact, many will be taking this debt into retirement.

Yikes!

Are you one of these?

What can you do?

Life insurance can be helpful.

Although life insurance can provide income replacement for a family when a breadwinner dies during his working years, its benefits never really cease.

Really?

Yes.

Do you have any debts right now or will you have any expenses resulting from your passing?

Take inventory of your assets and your liabilities.

You may not need the insurance to cover your debts.

What if you do?

You can use life insurance to take the burden of mortgages, funerals, and other end-of-life expenses from your loved ones.

Select the right type of policy.

Whole life, term life, and universal life are the three major types of coverage.

All pay a death benefit, but terms will vary considerably.

Bottom line: you need to purchase coverage that will be in existence when needed.

Term insurance, for example, has premiums that increase with age.

Surprise.

As you get closer to your "last birthday," actuarially speaking, the price of the premiums for your life insurance may become unaffordable.

You may be financially forced to drop the policy, just when needed most.

Choose an appropriate amount.

In addition to the right type of policy, you should purchase the right amount of coverage for your current and projected needs.

Ask yourself a few key questions.

What expenses will your family have after debts are paid?

How much can I budget from my current cash flow and savings to make sure I have enough life insurance to pay off those debts and expenses were I to die today?

Working with an experienced financial advisor and estate planning attorney can help you determine how to make life insurance best fit your needs.

Do not delay, however.

Your health actually "buys" the life insurance, your dollars simply pay the premiums.

Reference: Insurance News Net (January 7, 2019) “How To Use Life Insurance In Better Estate Planning”

Am I Responsible for the Debts of My Deceased Spouse?

You are not necessarily responsible for the debts of your spouse.

Your spouse died.

You have become the executor of his or her estate.

The issue?

Your spouse had unpaid debts.

Are you responsible for settling them?

According to a recent nj.com article titled “My husband died. Must I pay his loan?” the answer depends on a few factors.

If the debt was incurred for necessary goods and services, the answer is yes.

What qualifies under this category?

This would include things like medical expenses.

What if it was a debt for an RV purchased in your spouse’s name alone?

This will depend on the contract created by your spouse with the lender.

Typically, the estate may need to such liquidate assets and pay back debts to creditors.

There is often an order to the payment of debts.

For example, as noted in the article, New Jersey law provides a "batting order" for paying creditor whereby the estate first pays the funeral home, then expenses for administering the estate, then the office of public guardians for adults, any taxes, and medical expenses, any judgments, and any other claims.

Both Kansas and Missouri have a similar approach.

If you were to inherit a life insurance policy or retirement account through a direct beneficiary designation, there is no claim on these funds against the debts of the decedent.

There is an exception.

What is it?

If you are required to pay a debt by law because you were the spouse or if you were a co-signer on a loan.

What if the estate runs out of funds?

Any claims in the same tier must be paid pro rata.

This is a lot of information, I know.

Working with an experienced estate planning attorney can help you navigate the specifics of your situation.

Reference: nj.com (August 20, 2018) “My husband died. Must I pay his loan?”

Why Should an Executor be Concerned About Estate Debts?

Executors are often tasked with paying of the debt of the deceased.

Are you are an executor for an estate?

Did the decedent die with debt?

According to a recent nj.com article titled “What happens if executor doesn't pay off dead person's debt?,” you will be responsible for making sure legitimate creditors are paid.

Why?

You were named in the will to administer the estate of the individual who died.

This means you must follow the instructions left by the decedent in the dividing of his or her estate.

What does this mean?

You must identify, inventory, and gather all the assets.

You must contact and pay beneficiaries.

You must also pay any taxes on the estate and file an estate tax return, if necessary.

You must also pay any valid creditor claims on the estate.

Want to make it easier?

You can hire an attorney through the estate.

What if the estate cannot pay all of the bills?

The state laws may have guidelines setting forth a priority of claims?

For example, New Jersey requires debts be paid in a specific order.

Creditors must submit claims in a specified amount of time.

You are then given a time frame to dispute or pay the claims.

Be sure to check the laws of your specific state regarding how it handles creditor claims against estates.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: nj.com (June 5, 2018) “What happens if executor doesn't pay off dead person's debt?”

So, What Does Estate Planning Encompass?

Estate planning involves more than merely passing along assets.

Planning for the future is not easy.

It involves considering any number of possibilities.

For example, what will happen if you become incapacitated?

You will be unable to make your own financial or heath care decisions should this happen.

A recent fosters.com article asks an interesting question: “What happens to your debt in estate planning?”

Indeed, careful estate planning is required for this and any number of other scenarios.

To prepare for the aforementioned scenario, you will need a durable power of attorney.

You will want these to give a specified individual the authority to make your financial and health care decisions.

What types of decisions might this individual need to make?

Financially, the individual will likely need to pay bills (i.e., debts).

In regards to health care, a decision to remain (or not remain) on life sustaining treatment may need to be made for you.

Although you may never become incapacitated, we will all die.

You will need to plan for what will happen when this inevitable event comes to pass.

What are your options for passing along assets upon your death?

The first and most common estate planning tool is a will.

What does a will do?

A will instructs the probate courts regarding how you want your belongings distributed when you die.

A will is also how you name an executor for your estate.

What are the responsibilities of an executor?

An executor works with the probate court to secure and distribute assets as well as to inform or pay any creditors who may have claims against your estate.

Another estate planning tool would be a revocable living trust.

What does such a trust accomplish?

First, a trust is outside the purview of the probate courts.

You can manage a trust while you are alive and designate a successor trustee to take over the role should you become incapacitated and distribute assets to heirs when you pass away.

Is creating a will or a trust all the estate planning you should do?

No.

Certain assets do not pass through a will or a trust.

What are examples of these assets?

These assets would include joint accounts (but only until there is no surviving "joint owner"), IRAs, 401(k)s, annuity contracts, brokerage accounts, bank accounts, or life insurance policies.

You will need to specifically designate who is to receive each asset.

Remember, you will need to update these beneficiaries for each of these assets.

Merely updating your will would not do the trick.

What happens to your assets if you have debt?

In an ideal world, you would not die with debt.

In general, your beneficiaries would not be responsible for paying off you debt.

However, this is not always true.

If your beneficiary is a co-signer or  jointly owned the debt with you, then he or she will be responsible for paying it off.

Creditors may also be able to seek payment from your estate.

This includes unsecured debts such as credit card debt.

In these instances, your executor or trustee will be responsible for settling the debts from your estate.

As you can see, there are many things to consider when planning your estate.

Work with an experienced estate planning attorney to help you meet your goals and set your executor, trustees, and beneficiaries up for success.

So, how do you find an "experienced" estate planning attorney?

First, ask around. Friends, family and other professional advisors are trustworthy sources.

Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "Estate Planning Anytown MoKan").

Third, either way, verify! Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.

How?

Two helpful online resources are just a mouse click away to assist with your due diligence:  Avvo.com and Lawyers.com.

Check any Avvo ratings, client ratings/testimonials and attorney endorsements on Avvo.com and any "peer ratings" by judges/other attorneys and any client ratings/testimonials on Lawyers.com.

In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: fosters.com (November 22, 2017) “What happens to your debt in estate planning?”

How do I Avoid Taking Debt into Retirement?

Paying back debt is more difficult in retirement.

Do you currently have debt?

If yes, you are not alone.

About 33 percent of Americans age 50 and better carry debt.

According to a recent KSDK Five on Your Side article titled “Older Americans are getting crushed by debt,” the average amount of debt carried by these folks is about $12,500 in total excluding mortgage debt with about $4,800 in credit card debt.

If you are not yet retired, make it a priority to pay off debt.

Why?

Having debt will make it more difficult to pay for medical costs not covered by Medicare.

Sounds pretty terrible.

What can you do to get out of debt before retirement?

Wait to retire.

Receiving a consistent paycheck for a few more years and being able to postpone Social Security can help you have more money in retirement.

Let your kids be responsible for themselves.

If your children dig themselves into a financial hole, let them dig themselves out.

They have more time to pay off debt than you.

Pay your debt first.

Get rid of credit card debt before you put money into your retirement account, go on vacation, or purchase luxury items.

Downsize.

Without kids, you probably do not need as large of a living space.

Move somewhere smaller to free up money in the future.

Be proactive.

You can set yourself up for a much more stable retirement be getting out of debt.

Think of it as a "hole" in your retirement bucket.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: KSDK (St. Louis) Five on Your Side (August 23, 2017) “Older Americans are getting crushed by debt”