How to Handle Debt in Your Estate Plan


Estate planning is crucial for ensuring that your assets are distributed according to your wishes after your death. While much attention is commonly focused on assets, handling debt within an estate plan is equally vital. Each state may be different, and let’s use Missouri for an example. For Missouri residents, understanding the nuances of managing debt in your estate plan can safeguard your loved ones from unnecessary complications and financial burdens.

Categorize Your Debts

The first step in handling debt in your estate plan is to have a clear understanding of the types of debt you owe. Debts can generally be grouped into:

  • Secured Debt: Loans secured by collateral, such as mortgages and car loans.
  • Unsecured Debt: Obligations not tied to physical assets, including credit card debt, personal loans, and medical bills.

Document Your Debts

Create a comprehensive list of all your debts, including the creditor’s name, amount owed, account numbers, and contact information. This list should be updated regularly and kept in a secure location accessible to your executor.

Missouri Probate Process

Missouri law stipulates that when a person dies, their estate must go through a probate process. The St. Louis estate planning lawyers explain that during probate, an executor—a person appointed in the will or by the court—administers and settles the estate, including paying off debts.

Order of Debt Payment

Missouri law requires that debts be paid in a specific order of priority during probate:

  1. Administrative Expenses: Fees for the executor and costs related to managing the estate. 
  2. Funeral and Burial Expenses: Costs associated with the decedent’s final arrangements. 
  3. Debts Due to Federal and State Governments: Taxes and obligations owed to federal and state entities. 
  4. Medical Bills: Unpaid healthcare costs incurred during the last illness. 
  5. All Other Debts: Remaining unsecured debts, like credit card balances and personal loans.

Revocable Living Trust

A revocable living trust (RLT) can help manage debts more efficiently by avoiding probate. Assets placed in a trust pass directly to beneficiaries without going through probate. Additionally, debts can be settled through the trust, simplifying the process for the executor.

Life Insurance Policies

Naming your estate as the beneficiary of a life insurance policy can provide liquidity to pay off debts, administrative costs, and taxes. Ensure that life insurance benefits are adequate to cover outstanding debts and other estate expenses.

Joint Ownership and Payable-on-Death Accounts

Jointly held accounts and properties automatically pass to the surviving owner, bypassing probate. Similarly, payable-on-death (POD) accounts and transfer-on-death (TOD) accounts go directly to the named beneficiary. These arrangements can help manage debts by ensuring quick access to funds for debt repayment.

Regular Review and Update

Regularly review and update your estate plan to reflect changes in your financial situation, family dynamics, or Missouri laws. Keeping your plan current ensures that your wishes are accurately represented and debts are effectively handled.

Handling debt in your estate plan is crucial for providing clarity and security to your loved ones. By understanding your debts, using appropriate tools, communicating effectively, and regularly updating your plan, you can ensure that your estate is administered smoothly and in accordance with your wishes.