When you pass away, your estate goes through probate. Probate will analyze your estate plan, assess assets and distribute them, but all of this occurs after your debts have been paid. Before entering probate court, your executor has a few tasks he must complete.
The executor must create a list of all liabilities associated with your estate. This list could be included in your estate plan or left with a family member. Debts and liabilities should include:
- Credit cards
- Car and recreational vehicle loans
- Personal loans – including any student loans
- Storage units
- Loans against retirement accounts or life insurance policies
- Lines of credit
- Business loans
The expenses you list must be divided into two categories: one for costs that will continue throughout probate and one for costs that can be paid in full when you open the case in probate.
Costs that are ongoing are referred to as “administrative” expenses. These can include things like mortgages, property taxes, utility bills and lines of credit.
Costs that are paid when probate is open are referred to as “final bills.” These can include personal income tax, credit card bills, retirement accounts, personal loans and cell phones.
To ensure beneficiaries don’t pay for these expenses out of pocket, the executor must deal with them. There should be a plan for how expenses are paid in the estate plan to avoid any confusion.
If you need assistance setting up your estate plan, contact an estate planning professional today. An estate planning professional can help you create a plan that protects your loved ones and ensures your final expenses are covered.