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Estate planning updates: 3 reasons to act

Estate planning does not last forever in many cases. If you do it well before you need it, don't assume that the plan will stand the test of time. It may need to get updated. The truth is that life changes, sometimes dramatically, and your plan needs to change as well.

Identifying when you need to make those updates is important. Some people just do it once a year to make sure they're covered. Others look for key events that mean it's time for an update. Three such events include:

  1. Getting divorced and/or getting remarried. With this type of life change, you absolutely need to update your paperwork and consider whether or not your ex still has a right to some of your estate.
  2. Moving to a different state. The estate planning laws are not the same in every state. If you made your original plan in California and then moved to Virginia, for example, you want to go over it to make sure it still works here.
  3. Seeing a substantial shift in your liabilities or your assets. Maybe you took out new loans to start your own business, so you want to plan for that debt. Maybe you sold a business to retire, and now you have substantially more money and no need for a succession plan. When there's any major change to your debt or what you own, you need to update the plan.

What debtors need to know about their rights

According to a 2018 study, the average person in the United States has $38,000 in debt not including a mortgage. Virginia residents who are unable to pay a debt balance may receive phone calls from creditors or agencies. While it may be stressful to receive those calls, debtors do have rights that creditors and other parties must respect. The Fair Debt Collection Practices Act prohibits activities such as telling an employer about a person's financial situation.

Debt collection agencies are not allowed to contact debtors who ask them to stop doing so. Furthermore, they are not allowed to contact an individual before 8 a.m. or after 9 p.m. unless they have permission to do so. Debtors are not allowed to be threatened, harassed or subject to abusive language, and debt collectors are not allowed to lie in an effort to obtain a payment.

Bankruptcy may provide protection from collection agencies

Many Virginians struggling with overwhelming debt face creditor calls, collection letters and threats of lawsuits. This situation may encourage people to file for personal bankruptcy. After all, filing for Chapter 7 puts an automatic halt to any efforts to collect the debt outside the bankruptcy process. It can provide some relief from ongoing calls, creditor harassment or the potential of a judgment in court. If creditors want to continue with a debt collection attempt, including ending a lease, repossessing property or offsetting debts, they must first go through the bankruptcy court.

However, it may be less clear whether creditors have to actively stop actions they have already taken after a bankruptcy filing. While one Virginia court has affirmed that this is the case, other courts have ruled against the principle in the past. Now, the matter is expected to reach the U.S. Supreme Court. In the case in question, $1,000 of a woman's wages had been garnished by the state as part of an effort to collect on a $10,000 debt for legal bills from a divorce. After being approached by the woman's bankruptcy lawyer, the woman's creditor refused to take action to terminate the garnishment, saying he had no obligation to do so.

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.

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