Taking on some amount of debt is often part of managing a household. You can never predict when your vehicle might break down or you will need to repair the roof in your home. Having credit available makes it easier to cover these unexpected and unpredictable expenses.
Most people keep their debt at a manageable level and will make payments every month until they finally pay the account in full. However, some people fall behind on the repayment of their debts. Others will incur unexpected debts, such as a judgment against them after a serious car crash. Those on a fixed income, such as retired adults, may have a more difficult time managing existing debt or dealing with any new debts they incur.
Creditors ranging from credit card companies to hospitals may take aggressive action against those who have a past due balance. Careful asset protection planning long before you face a lawsuit or debt claim can help preserve your most valuable assets as you age and also protect what you want to pass to your children after you die.
The basics of asset protection planning
Your creditors could take you to court if they feel like you don’t repay your debts quickly enough. They could garnish your wages while you still have a job or even place a lien against your property. When you die, your creditors can demand repayment from your estate. Even Medicaid can request that your executor repay them for any medical services you received late in life.
In either situation, property that you depend on or that you want your loved ones to receive can wind up sold off to repay a debt. If you create an asset protection plan as part of your estate plan or long-term care plan, you can minimize the risk of your debt affecting financial stability in your golden years or your legacy after death.
By changing the way you own certain assets, you can make it much harder for creditors to make claims against that property. Many people create a trust as part of their effort to protect specific assets from future creditor claims. These same steps can protect your estate from taxation or keep valuable property out of probate court.
Thinking about not only your current financial plans but your possible future circumstances can help you create an effective estate plan.