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What Happens to my Debts When I Die, Part 3: Asset Protection

Part 3 of 3 – protect your assets so that your potential creditors don’t claim all of your estate. Plenty of options – just plan ahead!

Probate is essentially a state-mandated mechanism to make sure your estate pays all of its creditors before paying its beneficiaries. So, in order to make sure your estate’s assets don’t get substantially depleted by creditor claims, you’ll need to reduce the size of your estate. There are a number of ways to do this, and some of them are the same strategies used to avoid estate tax penalties.

First, you could invest your assets in retirement accounts, transfer-on-death accounts, and life insurance. All of these accounts are considered non-probate assets – as in, not part of your estate, so not subject to your estate’s creditor claims. These assets transfer immediately upon your death and can be a practical and simple solution to potential creditor claims.

Next, you could utilize irrevocable trust-based planning which will remove your assets from your legal ownership and control. If you don’t control your assets, your creditors cannot make a claim against them after you die as they’re not part of your estate.

You could also create a holding company for your assets and transfer legal title of them to the company. This method is similar to the use of irrevocable trusts. Remove your assets from your legal control and you can avoid having them in your estate.

You can also plan to use life insurance to pay off outstanding debts. For instance, if you know you’ve got $50,000 in student loan debt, you could get a term life police for $50,000 (or more) in benefits specifically to pay the student loan debt and avoid having that amount taken from your estate. People can also use life insurance to pay anticipated estate tax penalties.

Author Bio

Paul Yokabitus

Paul Yokabitus is the CEO and Managing Partner of Cary Estate Planning, a Cary, NC, estate planning law firm. With years of experience in estate and elder law, he has zealously represented clients in various legal matters, including estate planning, guardianship, Medicaid planning, estate administration, and other cases.

Paul received his Juris Doctor from the Campbell University School of Law and is a North Carolina Bar Association member. He has received numerous accolades for his work, including being named among the “Best Attorney in Cary” in 2016 and 2017 by Cary News and Rising Star in 2020-2023 by Super Lawyers.

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