When making a will I am often asked, “What about my debts?”
This is an important question. When you make your will it’s important to think not only about what you want to happen to your assets, but also what will happen to your debts.
When talking about wills, an asset is anything you own; including land, cash, cars, and shares. A debt is anything you owe to someone else; including mortgages, loans, and credit cards.
So what does happen to your debts? Debts are paid out of your estate before any cash or other assets. If you do not have enough cash; your executor might need to sell some or all of your assets to pay all your debts.
Without planning in advance, having more debts than assets will cause serious problems when it is time to execute your will. Sometimes leaving beneficiaries with nothing and preventing the passing of family heirlooms such as wedding rings and other irreplaceable items.
So what can you do to avoid this happening to you? To make the execution of your will as easy as possible, I always recommend that a cash portion of your estate is set aside for payment of any debts, funeral expenses, and other costs associated with administration of your will.
The key to a good will is preparation. Make sure that you know your true financial position before starting your will; consider how much money you would have left if you sold all your assets and paid all your debts. If you are unable to make these decisions yourself, making a financial power of attorney can also help by giving your attorney the power to address some of these issues before your will is needed.
Lawyer & Cofounder of Onlinewillkit.com