How to Protect Your Assets From Creditors With Your Estate Plan

When you work hard during your career, you take care to save and plan so that you can leave a legacy for yourself and your loved ones. Therefore, the threat of a creditor preying on your estate can be unsettling. Unfortunately, some individuals who have built up a hefty collection of assets and property, and that have become vulnerable in old age and death, can be subject to exploitation from creditors.

Therefore, to ensure that your assets and property are protected in an emergency or after your death, it is important to implement proper estate planning procedures and guidelines. To help you plan for protection from creditors, here is some advice on steps that you can take to prevent this from happening.

7 Options for Avoiding Predatory Creditors Who May Target Your Estate

In estate planning, there is no standard solution. Certain trusts or accounts may make more sense for you, depending on:

• Your geographical location
• The assets you own
• Your potential beneficiaries
• Your wishes upon death

Some options for implementing estate planning tactics to avoid predatory creditors include:

1. Setting up Limited Liability Companies (LLCs) or Family Limited Partnerships (FLPs). An LLC or FLP is an option that allows you to move your assets to a company account while still maintaining control over what is located there. Establishing an LLC or FLP allows you to bequeath assets to targeted beneficiaries while still maintaining a significant amount of control over the assets.
2. Creating an irrevocable trust. An irrevocable trust involves giving up all control over a certain amount of assets and putting them in another account, which will be managed by a trustee. The trustee will handle the account in a manner that can benefit the beneficiaries of your choosing. The assets will be protected from creditors, as they will no longer be under your name anymore.
3. Taking advantage of the California homestead exemption. In the state of California, as well as in other selected states, there is a policy that keeps a part of the equity that is tied to your primary place of residence safe from creditors. How much of your equity is shielded from creditors depends on varying factors, such as how old you are and whether you are married or in a domestic partnership.
4. Establishing retirement accounts. There are certain retirement accounts, like 401(k)s and IRAs, that can have assets that are protected from creditor access. It’s important to work with an estate planning legal professional to understand which kind of retirement account is appropriate for your situation.
5. Properly managing your accumulated debts. In some cases, you can avoid creditors trying to take money from your estate upon your passing by ensuring that you are actively settling debts. If you show demonstrable effort in paying back your debts, creditors may be less likely to file a claim against your estate.
6. Setting up life insurance plans. Typically, life insurance policies, and their respective payouts, are not subject to creditors when you pass. Usually, such funds are given straight to the designated beneficiaries, and they will not be subject to the probate process.
7. Avoiding any transfers that could be breaking the law. While estate planning, it’s important to make sure that you are working within the confines of the law. Instead of making illegal transfers to evade debt, there are legal solutions that can be pursued. This will help you avoid having fraudulent transactions reversed by the courts.

In addition to the options mentioned above, there are numerous other legal avenues that can be pursued to keep your assets away from the reach of creditors. An experienced estate planning attorney can help you put together a plan to protect your assets, based on the legal framework of the area you are living in.

FAQs

Q: What Trust Should I Get to Protect My Estate From Creditors?

A: In estate planning, the trust that is right for you will be dependent on the specifics of your situation. Irrevocable trusts are commonly used because they make it difficult to access the money in the account or alter the trust. Domestic asset protection trusts, or DAPTs, can be set up in a state other than California. DAPTs can be established so that the creator of the account can also be a beneficiary.

Q: Do Creditors Ever Go After Family Members?

A: There are some situations in which creditors may try to go after the family members to make up for debt or other outstanding assets owed. They may be able to successfully do this, or they can run into obstacles, which is dependent on what kind of debt is owed and the law in the geographical area where the money is being requested.

Q: Are There Debts That Are Forgiven Upon Death?

A: When a person dies and they are no longer required to pay off a debt because they are deceased, these debts are considered forgiven. There are some debts that are forgiven upon death, such as debts that are not backed by any collateral. This can include outstanding medical fees, loans on a personal level between individuals, and credit card debt. Federal student loans are also usually forgiven by the United States government.

Q: What Are Debts That Are Not Forgiven Upon Death?

A: Secured debts, or debts that are backed by collateral, are usually not forgiven upon death. This can include a home mortgage, which includes most debts that are connected to a home, and auto loans. Additionally, any outstanding debts that are related to taxes, such as income tax or estate tax, cannot be forgiven after an individual passes away.

Don’t Leave Your Hard-Earned Assets and Property Subject to Prey

As you are working on your estate plan, it’s important to act as soon as possible to protect your hard-earned assets. At Davis Toft, our legal team has years of experience helping clients meet their estate planning needs. Whether you are in need of establishing trusts, power of attorney documents, wills, or other legal processes, please contact our team for help today.