When your estate gets to probate court, it can be classified in one of two ways: solvent or insolvent.
Solvent means that there are still assets left over after all the debts have been paid. These assets are then distributed to the heirs as outlined in your Will or if there is no Will, in accordance with state law.
An insolvent estate on the other hand, is one where the debts exceed the value of the assets. In this instance, all the assets are sold off but cannot completely cover the debts. Creditors that are not paid will write-off the loss and your heirs won’t inherit anything because there’s nothing left to pass on.
Obviously, having a solvent estate is the way to go. But how can you be sure that your loved ones have enough to pay your debts.
For starters, you can take steps to get control of your debt now. Do what you can to pay it down and try to live within your means so that you don’t create new debt along the way.
Make a list of all your debt so that you know what’s owed and then take a look at your assets – do you have enough to cover your debts as they stand now?
Many people don’t, which is why estate planning is so important. Adding a life insurance policy to pay off your mortgage for example, would likely make a huge dent in your debt and help your family take care of the liabilities you leave behind. But the only way to know for sure is to take stock now and start planning.
To learn more about creating your own estate plan, contact our office today.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.