A recent study conducted by Experian found nearly 73% of Americans will die with debt. The last thing you want is to make the grieving process more difficult for your loved ones by leaving behind a mountain of debt. The best way to avoid this problem is to protect your beneficiaries from outstanding debt by starting to make a plan of action now.
Working with an experienced financial advisor is crucial when figuring out how to reduce debt before your death. Here are some ways you can protect beneficiaries from outstanding debt.
1. Name an Individual As Your Beneficiary
Assets like 401(k) accounts and life insurance policies are generally protected from creditors after your death. The reason these assets are protected is they have direct beneficiaries. Assets with direct beneficiaries don’t normally go through probate.
Failing to name your estate rather than an individual as beneficiary can result in your assets being tied up in probate for years if you leave behind debt. Unsecured creditors will have a much harder time getting these assets if you can keep them out of probate.
Not only do you need a primary beneficiary, you also need to choose a contingent beneficiary. With a contingent beneficiary, you can keep your assets protected should something happen to the person named as your primary beneficiary.
2. Invest in a Good Life Insurance Policy
Income protection is one of the main reasons why people invest in life insurance policies. However, if you want to protect your beneficiaries from outstanding debt, a good life insurance policy is vital. When people inherit a home or car with a loan attached to it, this debt will follow the asset.
In most states, life insurance policies are exempt from creditors. These exemption amounts do vary depending on the state a beneficiary resides in. Investing in a sizable life insurance policy helps to guarantee beneficiaries can pay off the loans attached to the assets they inherit from your estate.
Seeking out the assistance of a financial advisor is important before choosing a life insurance policy. You can With their assistance, you can choose a policy that will protect beneficiaries from outstanding debt.
3. Make a Plan to Pay Down Your Debt
Perhaps the best way to reduce the financial burden you leave behind for your beneficiaries is by paying down your debt before you die. The first step in this process is making a list of the outstanding debt you currently have.
With this information in hand, you can devise a plan on how to attack this debt. Ideally, you want to start with the high-interest debts you have first and then work your way down to the smaller balances. Doing things like ditching your credit cards and devising a budget is a great way to save money to put towards your outstanding debt and achieve financial stability.
Take Control of Your Debt
By following the tips laid out in this article, you can protect beneficiaries from outstanding debt. While accomplishing these tasks will be difficult, it is definitely worth the time and effort invested.