During estate planning, individuals typically try to create the best possible situation for their beneficiaries. However, this considerate act can come with considerable complications. Taxes, incomplete documents or disputes about the terms of an estate planning tool can make the transfer of your property to your beneficiaries more turbulent than expected. While an experienced estate planning professional can help you plan for and address these complications, some issues may be out of your control.
When one of your beneficiaries files for bankruptcy, they agree to put their available assets toward repaying their debts. In many cases, those debt-eligible assets include the inheritance you intend to give them. In bankruptcy – and especially a liquidation bankruptcy like Chapter 7 – creditors can take any of the debtor’s eligible assets.
How do I modify my estate plan to protect my beneficiaries then?
Bankruptcy focuses on accessible assets. Chapter 7 bankruptcy involves selling off possessions like a second car or real estate in order to pay off debts. The key indicator here is that the assets are accessible to the debtor.
When you leave assets like a house or a lump sum to a beneficiary in your will, those assets become legally accessible in the eyes of the bankruptcy court. You can protect your beneficiary and their inheritance by limiting their access.
By placing the inheritance in a trust or an annuity, you can effectively restrict access to the assets because they are legally held by a trustee or financial institution. Based on the terms of the trust, the trustee can hold onto the assets until the beneficiary’s financial situation stabilizes.
Get the proper guidance before making changes to your estate plan
If one of your beneficiaries has declared bankruptcy or intends to file for bankruptcy, discuss your estate plan with your attorney to ensure that any changes comply with Georgia estate laws.