Did You Know?: You Can Use Your Will to Dictate How to Pay Off Your Debts

Many people know and understand that the primary purpose of a Will is to dictate who should receive what from your estate. However, you can also specify how your debts should be paid in this document as well.

Generally, if you had outstanding debt obligations while you were living, you will also have debts after you pass. Your estate is required to address those responsibilities before dispersing your assets to loved ones.

Understanding Your Debt Obligations

There are two types of debt that you may leave behind:

  • Secured Debt. Secured debt has collateral attached to it. That is, if you do not pay this debt, the lender can repossess or take the property back to fulfill your debt obligation. The most common examples of secured debt are home mortgages and vehicle loans.
  • Unsecured Debt. When the debt is not tied to a specific piece of property, it is generally considered unsecured. The most common example is credit card debt or hospital bills.

It is essential to know the difference between these types of debt because it will affect property you can provide to your loved ones. For example, if you leave a car to a loved one that you still owe money on, your loved one’s ownership of the car may be affected. Your loved one may be able to take the vehicle subject to the security interest, or your heir may only get the equity that you have in the car by selling it back to the lender. You can also explicitly state whether you want the debt to pass to a loved one.

Dictating How Debts Will Be Paid

You can set out exactly how you want debt obligations to be paid through your Will. For example, you can set out that you wish to have all debts paid in full before distributing to any heir, which is the most common option, or you can be more creative about how your obligations are addressed. You may want to state that a specific loved one should pay particular debts out of his or her inheritance or that several people should pay a portion of a liability.

You can also specify that other assets are sold to pay debts before a specific property as well. For example, imagine you have a valuable family heirloom. You can instruct your Executor to sell other assets before selling the family heirloom to pay off debts. Then, the heirloom will only be sold if absolutely necessary to address outstanding debt obligations.

You may not need to set out specific instructions for your debts if your assets are just going to a spouse or one or two people. If your debts are relatively small, you likely do not need to worry about them as much, either.

You Will is a flexible document that can adjust to most of your needs. To learn more about tailoring your Will to your needs, contact Legacy Planning Law Group today at (904) 880-5554.

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Written by Legacy Planning Law Group

Legacy Planning Law Group is dedicated to working with individuals and families to help protect the assets they have built throughout their life, and make everything simpler for families who have lost a loved one. We help thoughtful people achieve the peace of mind that comes with planning their personal legacy and passing on family harmony.