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Are you too young to consider estate planning?

As a young adult, your major concerns until recently may not have revolved around what would happen to you, your assets or your family in the event of your death. After all, you, like most young Virginia residents, likely believe that you have decades of life ahead of you and have no reason to worry about your demise.

However, a recent event may have made you think differently. For example, maybe you had a close call in which your life flashed before your eyes, or maybe you had a more joyous event and welcomed a child into your family. Whatever the reason, you now feel that creating an estate plan could be in your and your family's best interests.

Trusts can provide greater protection

When Virginia residents think about their mortality, they often want to make sure that their assets can be disbursed according to their wishes. They also frequently want to pass on the vast majority of their assets to their heirs, rather than seeing a large portion consumed by estate taxes. In addition, many people prefer the flexibility, control and privacy provided by trusts, rather than simply passing assets on in a will. Trusts can have important benefits from the moment they are created, so many people prefer to create living trusts, rather than testamentary trusts that come into existence only after their death.

Unlike assets that pass through a will, trust assets pass on to their beneficiaries without going through the probate process. This can help to protect those funds from dubious challenges while also keeping the process out of public view. There are other benefits of trusts, however. They provide a strong mechanism for passing assets to minor children, but they also provide additional protection for adults. Trust protectors are one enhancement that people can use when creating a trust to provide additional protection for those assets in case of lawsuits, creditor issues or divorce.

Debt reduction should prioritize interest and not payments

Tens of millions of people in Virginia and around the country are struggling with overwhelming debt. Many Americans begin taking on debt as college students and continue to borrow throughout their lives, and making the monthly payments on their loans and credit card bills often leaves them financially unprepared for retirement. Escaping the debt trap is especially difficult when individuals have significant credit card balances as it can take decades to pay them off if only minimum payments are made.

One of the most popular debt reduction strategies is known as snowballing. This is a straightforward approach that involves paying off debts based on their monthly payments. The debt with the lowest payment is paid off first and the money saved each month is added to the monthly payment of the next debt. This strategy is pursued until all debts are settled. While snowballing may be a simple concept to grasp and follow, it rarely makes the most financial sense.

SECURE Act may affect retirement fund estate planning

For many people in Virginia, their retirement funds are an important part of their estate plans. After the original owner of a retirement account passes away, the remainder of the fund generally passes directly to a named beneficiary without going through the probate process. Rather than taking everything in the account at one time, named beneficiaries have, in the past, been able to stretch out the payments from the retirement funds over their own lifetimes. They have been required to take only the minimum necessary distributions, allowing the account to continue to grow while deferring taxation until their own retirement.

However, under the Setting Every Community Up for Retirement Enhancement Act, or the SECURE Act, which went into effect on Jan. 1, 2020, the ability of beneficiaries to stretch out payments over their own lifetimes has been limited. In many cases, beneficiaries must take the full distribution of the account within 10 years after the death of the plan participant. The new restrictions do not apply to all beneficiaries. Surviving spouses named as beneficiaries can still stretch out their payments over their lifetime or roll over their inherited benefits.

The difficulty of discharging student loans in bankruptcy

People in Virginia who have student loan debt are not alone. The total student loan debt in the United States is $1.59 trillion. Unfortunately, many people are struggling to pay off these loans, and they usually cannot discharge them in bankruptcy. However, there are other options.

One of those options for people who have federal student loans is applying for an income-driven repayment plan. It is also possible to put payments on hold for a while by applying for forbearance or applying to have the payments deferred. People who have private loans have fewer options, but lenders want to be repaid and may be open to negotiation.

Don't rush to bankruptcy without getting advice

If you were extra generous over the holidays and had to skip a credit card payment, you may feel terrible. On the other hand, you may be going through a slowdown at work that has caused your paycheck to be temporarily smaller until the warm weather returns. While these and other scenarios may set you behind on your bills and debts, they may not be adequate reasons to file for bankruptcy.

Bankruptcy is a form of debt relief that can truly benefit someone who is struggling with insurmountable debt or is facing other ramifications of unpaid debt. However, it is not appropriate in every case. In fact, filing for bankruptcy unnecessarily may be a waste of time and money.

An estate plan isn't complete without a health care directive

Although addressing one's mortality through estate planning could be uncomfortable, it is important for anyone who wants control over what happens to their body as well as their assets immediately before and after their death. Most people know they need a will and possibly a trust to provide guidance about their assets but many Virginians don't understand the importance of a health care directive.

A health care directive not only gives guidance on end-of-life care, but it may also provide instructions for how a person wants their body to be handled after their death. Death of a loved one, especially when it's unexpected, could be emotional for many people. Planning in advance provides family members and friends with some relief, knowing they won't have to make these decisions themselves.

How to keep medical debt under control

Medical debt is often cited as a reason why people in Virginia and other states file for bankruptcy. While it might not be possible to predict when a health issue will arise, it may be possible to manage medical debt. Ideally, individuals will take time to read and understand their health insurance policies. In some cases, it will be necessary to obtain approval before seeing a specialist or having a procedure done.

Failing to get that approval may mean that a patient is responsible for paying for a procedure or to see a specialist. Prior to paying a medical bill, it is important to review it to ensure that the invoice is accurate. Otherwise, a person could pay for services that were never rendered. If a claim is submitted to the insurance company with the wrong medical code, that claim could be denied.

The importance of digital assets in an estate plan

When Virginia residents create estate plans, they may be wise to ensure that they do not overlook their digital assets. Important information today is often found on electronic rather than paper records, and not including usernames and passwords in an estate plan can leave executors, trustees and heirs in a very difficult position. Digital assets that may be left inaccessible by such an omission include computer files, online financial accounts, website domains, subscriptions, and social media, email and message board accounts.

In addition to digital assets, a comprehensive estate plan should contain a list of digital liabilities such as payments that are charged automatically to debit or credit cards each month. In Virginia, executors and family members of a deceased individual are able to access digital information because the state has adopted the Uniform Fiduciary Access to Digital Assets Act. However, executors must have express written permission in a trust, will, power of attorney or other legal document to access personal assets like social media and email accounts.

Avoiding taxes on forgiven mortgage debt through bankruptcy

Virginians who lost their homes through short sales or foreclosures were previously allowed to exclude up to $2 million in forgiven mortgage debt before 2018. However, the provision that allowed people to exclude forgiven mortgage debt ended in 2017. This means that people who have had mortgage debt forgiven may face thousands of dollars in taxes.

One possible solution for people who have forgiven mortgage debt that they will be taxed on is to file for bankruptcy protection. Under the tax code, people who are able to prove to the IRS that they are insolvent are allowed to exclude forgiven debt from their income tax returns. Being insolvent means that someone's debts exceed the value of their assets.

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