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If you pass away with debt, do your heirs have to pay?
If you start looking into your estate planning, you know that it begins with dividing assets, but you may quickly realize that you have a lot of debt, as well. You plan to pay this off before you die or to declare bankruptcy or take care of it in some other fashion, but there's no guarantee.
If you pass away and still have debt, does that have to become part of your estate plan? Do your heirs need to pay your debt, and will they inherit it just like they would inherit your assets?
Your estate will be responsible for any remaining debt
Your heirs don't have to deal with your debt, at least not in the sense that they have to pay the creditors back on your behalf. Instead, the money will be taken from your estate. The executor of that estate may have to pay the debt directly with the financial assets you have, or they may even have to sell your physical assets and then take the earnings to pay back as much of that as possible.
Understanding beneficiary controlled trusts
If you have a substantial amount of money to leave your family in your estate plan, it's often wise not to leave it to them in a lump sum. This can have significant tax implications for them. If you have more than one child, they may each benefit from having a different type of trust, so it's a good idea to learn about the various types.
So-called “spendthrift trusts” are often used for people who need some supervision when it comes to money. A spendthrift trust is managed by a trustee who disburses money based on your instructions or (if you designate) at their own discretion. This kind of trust also protects a beneficiary's inheritance from being taken by creditors, plaintiffs in a lawsuit or a spouse in a divorce. That's because they don't legally have any control over the money.
A beneficiary controlled trust offers flexibility
What if you have a child or other family member who doesn't have these issues – at least for now? You can set up a beneficiary-controlled trust. That's essentially what it sounds like. The beneficiary is the trustee and has control over how the assets in the trust are invested as well as how much they withdraw from it and when.
What are the benefits of an irrevocable trust?
A trust is a legal arrangement whereby you give another party the power to control and manage your assets on behalf of a third party, usually your beneficiaries. For a revocable trust or living trust, the property you grant the trust remains within your control, and you may amend or revoke the terms any time you wish to do so. However, there are drawbacks associated with your control of the assets since the ownership remains under your name.
With an irrevocable trust, property under it transfers ownership from you to the trust. In addition, the terms cannot be easily modified or revoked once the trust is established. Depending on the size of your estate, it may be a beneficial form of estate transfer. There are benefits an irrevocable trust offers that a revocable trust does not. They include:
Protecting your assets
Since you do not legally own the property in an irrevocable trust, creditors cannot attach the said property to recover the debt. The same applies to the beneficiaries' creditors. As such, your estate is safe from repossession in case you default on debt. In addition, if the beneficiary gets a divorce, the property under a trust cannot be obtained from them to their ex-spouse.
Your Wisconsin vacation home and ancillary probate
As you start your estate planning, you likely already know that one of your goals should be helping your estate avoid probate – or at least a long, complicated one that will put your loved ones through the added expense and stress at an already difficult time.
If there's anything worse than one probate process, it's two. That may be necessary if you own property in another state when you pass away. Property that's subject to probate has to be dealt with in a court in that state. That's called “ancillary probate.” (Probate in your home state is “domiciliary probate.”)
The good news is that state probate courts are typically amenable to cooperating with each other on ancillary probate proceedings. That can make things easier for your executor, who will need to initiate all probate. However, it's still important to make sure your executor knows about this out-of-state property. They may have to travel there to deal with it. Going up to Wisconsin is one thing, but if you also have a condo in South Florida you're planning to retire to, that can mean a lot of extra time and travel.
Is your estate plan fit for the digital age?
If you have always been ahead of the crowd in adopting new technology, you need to make sure your estate plan is as up-to-date as you are.
When cryptocurrency launched, it touted two main advantages — security and tax avoidance. While the first bitcoin came out in 2009, it took a while for governments to realize cryptocurrency was here to stay. Therefore, they are still playing catch up to regulate it.
Keeping things secret is not good for your heirs
The security advantages that cryptocurrency promises can be its downfall if you do not allow for access in your estate plan.
Holding money somewhere that is harder to break into than Fort Knox is great when you are alive and remember how to get in. Yet, if you do not leave the entry details to someone, your family will not be able to get in once you die, and your investments will go to waste.
Estate planning laws now include standard ways to ensure your family gets access to all your digital assets, not just the ones with financial value.
Credit counseling requirements in a Chapter 7 bankruptcy
Unexpected events can often result in significant financial stress, leading to a higher amount of debt. Bankruptcy can be a practical and viable option for Chicago area residents who find themselves with debts that have become unmanageable. Deciding to file for bankruptcy is a major decision and the process can be confusing. Therefore, it is important to understand your bankruptcy options, the requirements and the steps involved.
Chapter 7 bankruptcy can be the fastest and best way to eliminate debt, but this type of bankruptcy doesn't work for every person and every form of debt. For instance, credit card debts and overdue utility or medical bills can be discharged, but, debts such as child support, student loans or tax obligations cannot.
Credit counseling is required as part of the Chapter 7 bankruptcy process. The counseling must be done through a Department of Justice approved credit counseling agency and can be completed on the phone or online. The goal of the counseling is to provide an understanding of the bankruptcy process and the impact and potential future consequences of filing for bankruptcy.
When can an executor use the small estate option for a will?
Most people have no experience with wills or the probate process. As a result, if you've been named the executor of a will, you're likely wondering what you have to do, what is the process like and whether there is any way to simplify things. There may be, but it depends on a few different factors.
What is the small estate option?
Illinois understands that going through probate can be a complex and time-consuming process. In light of this, a streamlined process was created for instances where the estate is small enough – to alleviate some of the burden on surviving family members. When an estate qualifies, an executor can file a small estate affidavit and avoid probate entirely.
What are the requirements for a small estate affidavit?
At the outset, the value of the deceased's assets must be less than $100,000. This is not always obvious at first glance – what may appear to be an asset could legally pass to another person or entity without ever going through probate. For instance, if the deceased owned property jointly with someone else, it may pass automatically to the other owner and not be considered an asset for the purpose of probate.
Essential estate planning documents
The passage of time occurs more quickly than anticipated and unexpected events can arise anytime. Regardless of your level of wealth, you should start an estate plan and have these documents prepared.
Power of attorney
A durable power of attorney is one of these essential estate documents. It authorizes an agent to make legal and financial decisions on your behalf if you ever become incapacitated.
A durable power of attorney allows the agent to assume these tasks immediately.
Health care directive
This is also known as medical power of attorney and allows for the appointment of an agent to make healthcare decisions when you cannot. Agents may also communicate on your behalf with health care providers.
A living will is a similar document that authorizes an agent to make end-of-life decisions. This helps assures that a medical professionals comply with a person's wishes.
What are Chapter 7 bankruptcy exemptions?
Chapter 7 bankruptcy is a liquidation bankruptcy process. There are different Chapter 7 bankruptcy exemptions that can protect some of the filing party's property from the process of selling property to repay creditors. Those interested in Chapter 7 bankruptcy protection should be familiar with what the Chapter 7 bankruptcy exemptions are.
Chapter 7 bankruptcy exemptions
There are several categories of Chapter 7 bankruptcy exemptions including:
- Homestead exemption – the homestead exemption allows the filing party to protect equity in their home. A consumer filing for Chapter 7 bankruptcy protection can exempt up to $15,000 in equity in their home from the bankruptcy process. The amount of equity they can protect goes up if the filing party is a married couple filing for bankruptcy jointly.
- Wage exemption – filing parties can exempt a certain percentage of their wages.
What if I have a child after executing my will in Illinois?
It is a wise and responsible decision for Illinois residents to have an estate plan. Even if it is a barebones will that details how the person's property will be distributed at the time of death, it is a key document to have. This is true for people of any age. For some, however, there are life changes that arise after they have completed a will. That might include getting married, divorced and having children. For those who have completed a will and have a child after it has been executed, there are certain legal facts to know.
Understanding how having a child impacts a completed will
For the testator, the contents will not be relevant for the child except in certain circumstances. If, for example, the child is left out of the will because it was not updated to reflect the birth, he or she will still be entitled to get the portion of the estate upon the testator's death. It will be the same amount as if the testator had died intestate (without having completed a will). The share the child will receive depends on the rest of the family. For example, there might be a spouse and other children who will be entitled to portions of the estate. A different issue is if the testator intended to leave the child out of the will. Disinheriting the child would need to be addressed in the will.
From our office in Geneva, Illinois, we serve clients throughout the region, including the communities of St. Charles, Batavia, Aurora, Elgin, Elburn, Sugar Grove, North Aurora, South Elgin, West Chicago, Fox Valley, Winfield, Wayne, Big Rock, Naperville, Wheaton, and Downers Grove, as well as other municipalities in Kane County and DuPage County.
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