There are many people who don’t think that planning their estate is something they have to care about, as they don’t own that much. But this is where they make the mistake because everybody has something they would like to pass on to someone once they are gone.
Without an estate plan with proper instructions, you lose control of the distribution of your legacy. Let us learn how an outstanding mortgage loan can impact your estate planning and how you can avoid the hassles.
Understanding Estate Planning
If you are someone who owns anything that has some monetary value and you would like to pass it on to someone else, then you technically own something called an estate. The process of deciding while you are alive about how your estate should be managed, who will manage it and what will go to whom once you die, is in simple terms known as estate planning.
Paying Mortgages And Trusts
Particularly in regions where prices are touching the sky, people are often not able to finish their mortgage payments during the typical human lifetime. In such circumstances, the heir or executor, who gets it after the buyer’s demise, has the responsibility to manage all the financial activities related to the property, including the mortgage. If any loan is remaining, he or she is required to pay it off.
The legal device known as a trust enables you to prevent burdening your heir from having to pay off your mortgage. Unless there is mutual agreement between the lender and the beneficiary about continuing to pay the outstanding debt on the property, it belongs to the creditors who even have the right to sell part or whole of the property to recover the money lent in the first place.
So if the heir to your property is a family member and agrees to pay your debt after your demise, then forming a trust would make sure the property remains safe and secure, as part of your estate planning.
Mortgage and Estate Plan
When an executor is appointed in an estate plan and if there is an outstanding mortgage on a property, then after the owner’s death and before the beneficiary takes possession of the property, the executioner is the one responsible to pay the remaining debt.
One way to make sure that the executor of your estate does not have to go through the trouble of paying your debts is to take out a life insurance policy that has the same term as the mortgage. That way, your estate and your remaining debt would be taken care of without any trouble to the executor.
It is important to remember that, even though you may leave a will saying that your assets should be passed on to the appointed heirs, they do not get the rights to those assets if you have debt remaining to be paid. In that case, the law says that creditors have the first say and only when they have got their share of money would the heirs be allowed to take the rest.