Author: Law Office of Andrew Szocka

Student Loan Debt and Estate Planning in Illinois

If you have student loan debt and are thinking about the future, you might be concerned that the debt will affect your estate planning. It is true that taking out loans could change how you plan in several ways.

What Happens to a Student Loan When the Borrower Dies?

Student loans don’t really disappear when the borrowers die. (The same is true when borrowers declare bankruptcy.) Unfortunately, the loan issuers can attempt to collect from the borrowers’ estates after their deaths.

During the probate court process of distributing an estate, the executor has to give creditors notice of the deceased person’s death and the probate action. The creditors then have a short time period to make claims against the estate. If they make valid claims, the executor must pay back the debts owed to the creditors with money from the deceased person’s assets. Any money that is left over goes to the heirs. But if the debts are large (as student loans often are) or the assets are small, there might not be anything left over for the heirs.

What If Someone Co-Signed on the Student Loan?

If someone co-signed on a student loan along with the student borrower, the situation is even worse after the borrower dies. Some student loans contain clauses requiring full repayment upon the student borrower’s death. This means that the co-signer is suddenly on the hook for thousands of dollars, all at once. Alternatively, the co-signer may need to keep making payments in the borrower’s place, often for many years. The co-signer usually has no option to discharge the loan when the borrower dies.

Can Borrowers Still Leave Assets to Their Heirs?

Despite the requirements of the probate process and the issues for co-signers discussed above, student loan borrowers do have the opportunity to estate plan in a meaningful way. A few options that leave money to family without the risk of creditor claims in probate include:

  • Placing assets in an irrevocable or living trust
  • Taking out life insurance or opening a retirement account
  • Making lifetime gifts

All of these methods remove the borrower’s ownership of the funds or make distribution to another person upon the borrower’s death mandatory. As a result, student loan companies most likely will not be able to access the assets to repay the loans.

In debt and want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

Mortgage Debt and Estate Planning in Illinois

When you have a mortgage on your house that you won’t pay off any time soon, you need to factor that debt into your estate plan. A mortgage is a significant debt that can affect the value of your total estate, diminish inheritances that you leave, and burden co-owners with payments.

What Happens to a Mortgage When the Homeowner Dies?

Mortgages do not disappear when the homeowners die. Instead, the mortgage companies may seek repayment of the mortgage debt from the homeowners’ estates or even change the mortgages’ terms for the surviving co-owners.

When only one person took out the mortgage, the mortgage company can make a claim against the deceased person’s estate. Estate executors must notify all creditors and allow them time to file claims. Before the deceased person’s assets can be distributed to heirs, the creditors who made claims get paid from the assets. This diminishes the inheritances that heirs receive. If the deceased person’s assets are not enough to pay all creditors, each creditor gets some of the assets. Then the heirs inherit nothing.

A mortgage is often the largest debt that the estate must pay. If it is large enough, paying it back can wipe out all of the assets – including the house itself. The executor might have to sell the house or give it up to the mortgage company.

What If More Than One Person Owns the House?

When there are two or more homeowners, the mortgage is probably in both people’s names. As a result, the surviving homeowner usually becomes liable for paying the mortgage when one homeowner dies. In some cases, it might be an opportunity to refinance, or the mortgage company might try to make changes in the mortgage terms. In other cases, it is a financial disaster because the surviving homeowner can no longer afford mortgage payments.

Estate Planning Around a Mortgage

Some people choose to have their houses owned by trusts to avoid the issues described above. However, it might be difficult to get a mortgage or change the owner on a mortgage if you start a trust (talk to a lawyer and your mortgage company for details). There are some other options like having the home owned by a business, choosing ownership by only one spouse, or even provisions in a will requiring sale of the house upon the homeowner’s death. Again, talk to your estate planning lawyer about what is best for you, especially if you are retiring and still owe years of mortgage payments.

In debt and want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

Credit Card Debt and Estate Planning in Illinois

If you have significant credit card debt, you may wonder if the debt will affect your estate planning or if it will cause problems for your heirs. Not accounting for money you owe on credit cards could have surprising consequences. As a result, your estate plan may need to factor in your credit card debt and try to minimize its impact on inheritances.

Will Credit Card Debt Stick Around After Death?

Your debts unfortunately do not simply disappear after you pass away. Credit card companies still want to collect their money, whether it is from you or from your estate. In Illinois, the probate process for distributing estates allows creditors to make claims against an estate. They must receive notice of the debtor’s death from the executor, and then they have a limited time period to assert their claims to the court.

In addition, creditors can seek repayment from co-account holders. Surviving co-account holders still have the obligation to make payments on the credit card debt after one account holder passes away.

Will Credit Card Debt Reduce Inheritances for Your Heirs?

Provided that an estate has enough money, the executor will have to pay off the creditors before distributing inheritances to heirs listed in the will. Any creditor who made a valid claim will receive a payment from the estate. The heirs would receive whatever is left over in the estate. If the total estate assets are not large enough to pay all the debts, then the executor will make partial payments to creditors. However, the heirs would receive nothing.

How Can Estate Planning Help with Credit Card Debt?

If you have substantial credit card debt, you may want to take advantage of estate planning structures that protect assets from creditors. For example, properly drafted irrevocable trusts remove assets from your probate estate. As a result, the executor cannot use the assets to pay back creditors, and the creditors cannot levy them.

Further, you can make lifetime gifts to your chosen heirs instead of gifting in your will. Doing so gets the money directly to the heirs without the requirement of probate. Other estate planning structures and techniques can achieve similar results. If you have credit card debt and are concerned about its effect on your family and heirs, consider how an estate plan can help.

In debt and want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

Will Your Child Turning 18 Matter for Your Estate Plan?

As your child grows up, his or her eighteenth birthday could affect your estate plan in surprising ways. If you didn’t realize that this milestone would affect your estate planning, you may want to review the possible changes that you can make.

Your Child Becomes a Legal Adult

Because your child becomes a legal adult on his or her eighteenth birthday, certain protections in many estate plans no longer apply. These include:

  • Guardianship designations
  • Custodians and trustees to safeguard minors’ inheritances
  • Rules restricting minors’ ability to be beneficiaries of retirement plans and life insurance

Many parents include guardianship designations in their estate plans in case their children need someone to care for them in the absence of the parents. While guardianship designations are not binding on the judge who ultimately selects the guardian, they provide helpful guidance. Once your child turns eighteen, he or she may no longer need a guardianship designation. If your child has special needs, however, then you may want to keep the guardianship designation in place.

In addition, your estate plan may include provisions that appoint custodians or trustees to manage money for any minors who would inherit. These provisions will become unnecessary when your child turns eighteen. The same goes for restrictions on minors’ ability to receive payouts from life insurance or retirement plans.

Changing Your Estate Plan

Once you review your estate plan, you may realize that portions of it need changes because of your child’s birthday. For example, you may want to rewrite your will to give inheritances directly to children rather than their parents or custodians. Or you might need to change your beneficiary designations on a retirement plan or life insurance.

Further, some children need additional protections because they have special needs. You might want to set up a special needs trust (SNT) for your adult child who has significant medical costs or trouble with personal care. Estate planning offers the opportunity to plan for both your and your child’s future.

Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

How Does the Marital Deduction Affect Couples’ Estate Planning?

When married couples start estate planning, they may not realize the advantages of the marital deduction. This special tax deduction available only to married couples can help save money on taxes, but some additional estate planning might be necessary.

What Is the Marital Deduction?

The marital deduction is a tax deduction permitted by the IRS that allows spouses to make unlimited tax-free transfers to each other during their lifetimes or upon the death of one spouse. In other words, one member of a married couple will not have to pay gift taxes at the time if he or she transfers property or money to a spouse. Further, a surviving spouse can receive an inheritance from a deceased spouse without losing a chunk of the money to estate taxes.

The deduction only forestalls taxes until the death of the surviving spouse. At that point, the surviving spouse’s estate may owe estate taxes if the value of all the spouse’s assets exceeds a certain amount (currently in the tens of millions of dollars). Also, if the surviving spouse remarries at some point, then the surviving spouse may be able to give the property or money received from the deceased spouse to the new spouse.

Estate Planning to Take Advantage of the Marital Deduction

To make the most of the marital deduction, couples can do some estate planning that minimizes the surviving spouse’s exposure to estate tax liability. Which estate structures to put in place depends on the couple’s amount of assets. For example, you might need to move assets into a trust so that the surviving spouse’s estate can take advantage of the estate tax exemption (the maximum amount in the estate before owing taxes). Different kinds of trusts can provide support for the surviving spouse while removing assets from his or her taxable estate.

Keep in mind that non-citizen spouses are not eligible for the marital deduction. In fact, non-citizens often only receive lower estate tax exemptions too, so potential tax liability is huge. Fortunately, some careful estate planning can help, such as setting up a qualified domestic trust (QDOT). If you have questions about the marital deduction or the taxes that may apply to you, talk to a local estate planning lawyer.

Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.