Will your estate be used to pay off debts?

On Behalf of | Jul 21, 2023 | Probate

You probably plan to leave your family an inheritance after your death. However, you might die before paying all your debts. This could complicate the efforts of your surviving family members to claim your property in probate.

As Nerdwallet explains, in certain circumstances your creditors have recourse to claim your assets to fulfill your outstanding amounts.

The probate estate

Your creditors can make claims against your estate during probate. If a court finds the claims have validity, your executor will use the assets in your probate estate to pay the debts.

If there is not enough money in your accounts, your executor might sell some of your property to pay your creditors. However, in the event your estate lacks enough assets to cover all your debts, your creditors may take less than what they were hoping for or nothing at all.

Non-probate assets

Creditors generally have a much tougher time claiming assets that are not a part of your probate estate. Non-probate assets pass directly to beneficiaries, so they do not require court action. Common examples include life insurance policies and pay-on-death accounts.

However, there is a way for non-probate assets to still end up in a probate estate. Non-probate assets depend on a beneficiary designation to transfer ownership. If your beneficiaries die and there are no backup beneficiaries, the asset might go into your probate estate and become subject to creditor claims.

Losing property to creditors could deprive your family of some or even all of their inheritance. Taking steps to bypass probate might help you realize your estate wishes and protect your assets from creditor claims.