When your estate planning attorney in Tracy and Manteca helps you make decisions about how to allocate your assets, he or she may also ask questions about resolving any debt you may leave behind. Whether you leave instructions in your will about debt resolution and how you instruct your heirs to handle leftover debt depends on a number of different factors. Here is what you need to know.
Two Types of Debt
If you address your debt in your will, you need to address both secured and unsecured debt. Secured debt is debt that is guaranteed by an asset. Car loans and mortgages are examples of secured debt. If you plan to pass on an asset that acts as collateral for a secured debt on to a beneficiary in your will, then you should specify if the debt will pass to the new owner with the property. You may also wish to make provisions for satisfying the debt if you want the person to have the property but not be burdened with the associated debt.
Unsecured debt is debt that is not guaranteed by an asset. Credit card bills, medical bills, and utility bills fall into this category. Typically, state law requires that these bills be paid from your estate. You can decide if you wish to allow your executor to simply make these payments from your estate as a whole or you can direct him or her to make these payments from specific portions of your estate.
Deciding Whether to Leave Instructions
You do not necessarily have to leave instructions for dealing with debt in your will. Generally, if your debts represent a very small portion of your estate or your estate is going to a spouse, then you do not need to address debts in your will. You can also forgo leaving instructions if you are fine with allowing your debts to be paid from your estate in accordance with state law. Your attorney can explain to you how the law will apply to the debts that you have. If you do not leave any instructions, the executor of your estate will use assets you have left behind to satisfy your debts in accordance with the law.