There’s a very good chance that your estate is going to include some final debts. You can plan for some of these debts in advance. For instance, people sometimes attempt to pay off business loans or home mortgages as they get older, intent on clearing those debts before they pass away. In some cases, people will also set up financial accounts – like trust funds or payable-on-death accounts – that their family can use to handle their debts.
But planning ahead does not necessarily mean all remaining debt will be addressed. Say that you pass away unexpectedly. It’s likely that you’ve still been using your credit card during the month, so the remaining balance has to be paid. Even if you own your house, you may need to pay property taxes for that year. If you have an income, you’re likely going to be responsible for income taxes. Who handles these financial obligations?
Your estate executor
The person in charge of handling these debts is the estate executor. This is why it’s so important to ensure that you pick the right person to administer your estate. They need to be financially savvy and competent so that they can quickly address these issues and help things go smoothly for the rest of the family.
This doesn’t mean that your estate executor is going to be personally responsible for your debts, however. You are not passing those debts on to the next generation. Instead, it is just the executor who has the legal right to access the accounts within your estate so they can use your own funds to pay off the final debts before distributing assets.
As you can see, there are many components to an effective estate plan. Be sure you know exactly what steps to take when drafting yours.