When people imagine the estate planning process, they tend to focus on the question of passing their assets to loved ones and preferred causes. The process also addresses outstanding obligations from when a person passes. American law requires all accounts to be settled, and tax agencies and creditors have rights just as much as beneficiaries do.
You'll want to work with an estate planning lawyer to make sure all of these outstanding issues are closed. Otherwise, the parties that have claims can force the estate into probate to protect their rights. Here are three ways you can plan for that eventuality.
The simplest solution is to leave behind sufficient funds to pay the taxes and debts. Most people don't want to have large amounts of idled cash sitting around just to fund an estate, though. Fortunately, you can set aside some of your more stable assets to serve as payment sources. An executor can sell several pieces of property, for example, to provide money for the settlement of debts.
It's wise to outline in your will which assets will serve as funding sources. Otherwise, there might be disputes about whether the estate ought to sell a particular asset. Likewise, you'll want to have your estate planning lawyer make sure the documents governing everything empower the executor to take appropriate settlement actions.
Itemizing Expected Liabilities
All estate planning efforts should include itemization. Figure out what your liabilities are likely to be. Generally, it's best to assume the worst scenario. For example, assume the tax bill will have to cover at least one year of unpaid taxes.
You can approach debts much the same way. However, you'll want to anticipate some growth in the debts due to ongoing fees and interest. Also, make sure your estate planning lawyer is aware of any secured debts so they can prevent foreclosures or repossessions of assets you want to transfer. If you don't care much about an asset, however, allowing it to go to a creditor is a settlement option.
The critical thing is that you don't want to come up short. Remember, if the executor is looking at more funding than necessary to settle accounts, they have the power to distribute it before closing the books on the estate.
Cover Beneficiaries' Taxes
Some assets from estates count as income. Ask your attorney to identify what the government will tax after transfer. Provide some additional money to ensure your beneficiaries don't take on difficult obligations. For more information, contact an estate planning attorney.