How Poor Estate Planning Can Hurt Your Children

Financial Planning for Children

Whether or not you’ve been financially responsible throughout your life, there will come a time when you need to consider estate planning. Thinking about getting older and how we will afford long-term care can be unpleasant. To that end, many Americans ignore it. In fact, 60 percent of those surveyed say they have no will or estate-planning in place.

Even for those who are not wealthy, estate planning is important for a number of reasons. And if you think that failing to execute estate plans is only hurting you, think again. The plans you make for your golden years — including making decisions about any assets and possessions when the time comes to relinquish them — is important not only to you, but also to your children. Your lack of planning can cause financial burden and even potentially damage your children’s credit score.

Let’s take a look at some of the ways that poor estate planning — or a complete lack of planning — can unintentionally harm your loved ones.

They could end up bearing your debt burdens

As much as we’d all like to believe we will have all of our financial ducks in a row when we reach our golden years, things don’t always work out that way. According to a recent study, more than 70 percent of U.S. seniors between 65 and 74 years old carry some level of debt. The average for those in this age group that carry debt is $108,700, and those over 75 that carry debt have an average of $57,500.

When someone dies with debt, debt-collection attempts can unfortunately become the burden of children or other heirs. Unfortunately having an estate plan will not necessarily protect your children from debt collectors. You can, however, plan for a portion of your life insurance policy or other assets to pay off your debts. This will help ensure that your children aren’t left scrambling to pay your debts or fend off debt collectors.

You can cause them a tax bill

It’s important to consider the potential tax implications of your decisions. While estate tax has been virtually eliminated at both the federal and state levels, monies outside of an estate that have never been taxed — such as a 401(k) retirement account — and are left to your children, could be subject to tax. Property that is left to heirs can also be taxable in certain situations.

Many of us assume that we don’t need to have an estate plan in place. We think that simply relinquishing money and property to our children via a will or other written documentation will suffice. But without the help of a professional financial or estate planner, you could be opening your children up to tax liability that will cause them a financial burden. Tax debt is one of the leading reasons for financial difficulty and credit issues. And if you do not have a legally valid will in place (for example, you’ve written something up but never made it binding via a witness and notary), your children may potentially incur the costs of filing probate. Therefore, it’s imperative to ensure that any assets you intend to leave to your children don’t end up costing them money in the long run.

Your long-term care needs can cause financial stress

None of us like to think about a time when we may need part- or full-time care. It’s unpleasant enough that we ignore it entirely and often make no plans at all for the possibility of illness or incapacitation.

Even the best of intentions on the part of your children to care for you can quickly become unrealistic. Whether they opt to care for you in their own home or to rely on the assistance of a long-term care facility, the costs can quickly become overwhelming. In these scenarios, the children of aging parents often turn to high-interest credit cards or otherwise max out their existing credit in an attempt to pay for care or end-of-life expenses.

The U.S. government estimates that 70 percent of people aged 65 today will require some form of long-term care during their lives. Therefore, having an estate plan that includes long-term care planning is imperative. Working with a professional will help you understand all of the options available to you through Medicare and other resources to ensure you do not leave your children with undue financial stress in your later years or at the time of your death.

You can impact their ability to qualify for loans

It’s important to consider the stage of life your children will be in during your retirement years. For instance, your grandchildren might just be starting college, or even buying their first home and will need their parents’ assistance. If your debts or assets become a financial burden for your children, it will impact their ability to qualify for loans or credit that can help their own children with college expenses or a down payment.

It’s important to think about the impact your estate planning decisions will have on your children and loved ones. By seeking the advice and professional service you need in order to execute proper planning, you can avoid putting your children in a bad financial situation or negatively impacting their credit.

If you or your loved ones are in need of credit help, contact CreditRepair.com today at 833-333-2283. We offer a free credit consultation and free access to your credit report summary.

 

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