INSIGHTS

Debt is like a leaky roof—it may not seem like a big deal at first, but over time, it can cause significant damage to a home's structural integrity and value. Like a thorough home inspection, an estate plan is your financial foundation. It ensures that your financial “house” stands strong and secure for multiple generations, protecting it from unforeseen risks and remaining a cherished home for your loved ones. 

Just as you wouldn’t want to leave your family with a house full of leaks and structural issues, you wouldn’t want to leave them with unresolved debts or a murky financial legacy. A well-crafted estate plan patches up leaks, reinforces your financial foundation, and ensures your legacy will carry on for multiple generations. 

That’s one of the best reasons to consider working with a fiduciary financial advisor in Houston. For example, Precedent Wealth Partners can give you the advice and financial strategies you need to produce the best results for your family today and for future generations.

In today’s blog, we’ll examine the impact of debt on various parts of your financial life and discuss possible solutions to position yourself better to avoid transferring unnecessary debt to your heirs.

Understanding the Potential Impact of Debt on Your Estate

Estate planning becomes progressively more important if you are accumulating $500,000 or more in investable assets. As your wealth grows, the complexities and potential challenges increase, making estate planning an essential tool for protecting, managing, and distributing your assets according to your wishes.

It’s important to identify and evaluate the various types of debt in your financial life so that you can be confident you are providing your heirs with assets, not liabilities. Here’s how to make estate planning simple and effective, with a focus on the transference of debt:

• Mortgage Debt is one of the most common forms of significant liability. If your mortgage isn’t fully paid off when you pass away, it can potentially create a burden for heirs. This could force them to sell an asset, such as a second home, which you might prefer to keep in your family. 

• Credit Card Debt: Unpaid credit card balances, particularly those with excessive interest rates, can significantly drain your estate.

• Auto Loans: If you have outstanding car loans, you must settle these debts before your vehicles can be sold or transferred to your heirs.

• Student Loans: While federal student loans may qualify to be discharged upon death, private student loans will remain and need to be addressed by those settling your estate.

• Medical Debt: Unpaid medical bills can add up, especially if extensive medical care is needed towards the end of life.

• Personal Loans: Any unsecured personal loans must be repaid from the estate’s assets, potentially reducing the inheritance for your beneficiaries.

Estate Planning Tactics to Prevent Debt Burden

Now that we’ve identified some of the more common forms of debt that can impact your estate let’s look at estate planning tactics that can help prevent or minimize these burdens:

• Work with a Fiduciary Financial Advisor in Houston

A fiduciary financial advisor in Houston is legally bound to put your best interest first and foremost. Including a fiduciary advisor in your estate planning can enhance estate planning decisions which minimize the impact of debt and maximize the protection of your assets.

• Create a Debt Repayment Plan

Develop a strategy that will pay down debts, as appropriate, as part of your estate planning process. It may not be wise to retire each and every debt, however. For example, consider a married couple with a home mortgage that has terms currently below market rates. If the surviving spouse intends to remain in the house for an extended period, it could well be financially prudent to continue the existing mortgage. This will require some financial analysis. A Houston financial planner, operating under the fiduciary standard can help you prioritize which debts to pay off first and how to manage your overall finances to reduce the impact of debt – both now and in the future.

• Consider Life Insurance

Life insurance certainly may be a useful tool in estate planning. A policy can provide a payout that eliminates outstanding debts, ensuring your heirs don’t have to use their inheritance to settle these obligations. However, life insurance is not an “end-all, cure-all.” Discuss life insurance options with a fee-only financial planner in Houston, free of conflicts of interest associated with product commissions, to find the best solution based on your needs.

• Establish a Revocable Living Trust

If your total estate is $1 million or more, a revocable living trust may help manage your assets and debts effectively. By placing your assets in a trust, you can pre-plan and specify how debts should be handled, potentially avoiding probate and ensuring a smoother transition of assets to your heirs. An important advantage of a revocable living trust is to create effective planning for contingencies other than your death – most notably incapacity.

Watch our team of Houston financial advisors discuss how you can simplify and organize your financial life. 

• Set Up a Pour-Over Will

A pour-over will is a specific type of will drafted by your attorney to ensure that any assets not already included in your trust at the time of your death are transferred into it. This can help you manage debts more efficiently and ensure you pursue your estate plan's goals.

• Address Joint Debts

If you have joint debts with a spouse or other family members, discuss strategies for handling these debts within your estate plan. A fiduciary Houston, TX advisor can guide you on managing joint debts to minimize the financial impact on your heirs.

• Designate Beneficiaries Carefully

Ensure that your beneficiary designations on accounts like retirement funds and life insurance policies are up-to-date. Proper beneficiary designations can ensure these assets bypass probate, allowing them to go directly to your heirs and avoid being used to pay off estate debts. Mistakes with beneficiary designations on retirement accounts can be particularly problematic, possibly creating additional debts in the form of income taxes. Obtaining counsel from a fiduciary financial advisor in Houston can help you avoid these mistakes.

• Monitor and Update Your Estate Plan

Life circumstances and financial situations change. Regular reviews and updates to your estate plan with a financial advisor in Houston, TX, ensure that it remains relevant and effective in managing debts and protecting your assets.

How Precedent Wealth Partners Can Help

We’re an independent, Texas-based RIA (Registered Investment Advisor) with over a century of combined experience among our founding partners. We are dedicated to meeting the diverse needs of our clients (individuals, families, and businesses).

Precedent Wealth Partners was established to be a different type of financial advisor. We removed traditional wealth management’s focus on short-term investment performance and misaligned financial interests. Instead, we envisioned a new standard of genuine partnership and commitment between investors and advisors, believing it would produce better outcomes for both parties.

We’ve crafted a groundbreaking blueprint for a unique wealth advisory model focused on long-term, full-service financial/retirement/estate planning, and tailored investment management. This new approach sets a new precedent for prosperity.

Since our founders entered the industry in the 1970s, they have recognized the need for personalized financial advice. Our innovative WillShare program enhances the unique fiduciary model our founders have embraced for decades but extends it to treat you like a fellow owner or partner in our firm, which in turn ensures a complete alignment of financial interests.

Building substantial wealth requires time, effort, expertise, and proactive guidance. We are responsible for providing personalized financial services and proactive advice throughout all phases of your financial journey. Our comprehensive services are provided for one simple, fully transparent fee.

We pride ourselves on offering independent, unbiased advice. Like an old-style family office serving a single ultra-wealthy family, we remain a proudly independent firm with no external influences to compromise our advice or services. Our sole duty is to you and your family, ensuring your best interests always come first.

Connect with us to learn more about our estate planning services.