The more income you earn and the higher the percentage of that income that you save from each paycheck, the more property you will have to address in your estate plan. For most people, the main purpose of estate planning is to take control over what happens to their property when they die and to provide for the people that they love in that situation.
Recognizing that there are certain liabilities that can negatively impact the property you hope to pass on to the next generation can help you create a strong estate plan or update your existing documents to maximize what you leave for others. What are three issues that might negatively affect your estate?
Personal debt
When you die, your property becomes the property of your estate, your estate also assumes responsibility for your financial obligations. Your creditors, ranging from someone with a civil court judgment to a credit card company, can bring a claim against your estate.
Such claims have higher priority than the inheritance rights of your family. Your executor will have to pay those debts in full before they can pass anything on to the people you love. If you don’t plan to address your debts or preserve your assets, that could significantly diminish your legacy.
Medicaid recovery claims
If you apply for Medicaid in the later years of your life to cover extensive medical care or nursing home costs, that coverage isn’t free. After your death, the Medicaid estate recovery program will bring claims against your estate. They can demand repayment for every dollar they pay out on your behalf. As with other creditors, their claims take priority over your estate plan.
Estate taxes
If the property that you leave behind is worth millions of dollars, then your estate may incur taxes. Although Tennessee does not assess an estate tax, the federal estate tax does still apply to estates worth more than $12 million probated in Tennessee. Given that the top tax rate could be a staggering 40%, advanced planning to prevent those taxes from reducing what your loved ones inherit may be a wise choice.
Creating an estate plan that acknowledges your possible financial liabilities will benefit you and the people who will inherit your property.