4 Ways to Protect Your Estate from Creditors

4 Ways to Protect Your Estate from Creditors

Tax collectors aren’t the only people who can go after your estate. Creditors and other parties often can (and will!) target the assets you leave after you’re gone. Unless you work with an experienced Florida estate planning attorney, your estate is vulnerable.

Fortunately, there are a few steps you can take to protect your estate and make sure your beneficiaries get the inheritance that you intend to leave them.

Here’s a quick overview of some techniques your attorney might use to avoid probate and prevent outside interests from getting their hands on the money you’ve left for your loved ones.

  1. Creating a Trust to Avoid Probate. Establishing a trust is one of the most common techniques to avoid probate court. While wills have to go through probate, which can be both expensive and time consuming, trusts do not. This is important, because probate can cost more than three percent of your estate—and tie your loved ones up in courts for a year or more.

A trust can also prevent others from suing your heir for a chunk of your assets. Unlike a will, a trust can specify that the money left behind is only to be used for a specific purpose—like the education or support of a select beneficiary. A skillful estate attorney will use specific language and provisions to prevent creditors from seizing assets from your estate.

  1. Managing Retirement Assets Carefully. In 2014, the Supreme Court ruled that inherited IRAs are no longer protected from creditors. This means that if not handled carefully, retirement assets can also end up in the hands of creditors. For example, if your heir files for bankruptcy, the IRA or 401(k) you bequeathed them could be drained to cover their debts. Though spouses of the deceased are exempt from this ruling, children and grandchildren are not.

To avoid this unpleasant scenario, have your estate planning attorney help you draw up a stand-alone IRA trust. Such a trust will allow your offspring to have access to the money from your IRA, while blocking creditors from targeting their inherited assets if they file for bankruptcy.

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  1. Protecting Your Life Insurance Proceeds. Although a life insurance account is protected from creditors, once the funds are removed from the account and distributed as cash to your heirs, they become vulnerable again to outside parties.

One way to keep these insurance funds safe is to put them into an irrevocable life insurance trust, also known as an ILIT. An ILIT, like other types of trusts, contains provisions that keep your funds out of reach of the beneficiary’s creditors.

A “spendthrift clause” is an example of a protective  provision your attorney might use. This clause prevents the trustee from distributing the funds to anyone besides the beneficiaries—including ex-spouses, creditors, or even the IRS.

  1. Titling Bank Accounts and Assets Correctly. This is a simple but often overlooked technique to ensure your loved one does not have to go through probate. Naming your spouse or any other intended heir as a beneficiary on your bank account ensures they will have access to the funds in the case of unexpected death.

In this instance, naming a beneficiary on your accounts and assets protects them from your creditors (instead of your heir’s), in a scenario where you pass away with unpaid debts. On financial accounts, assets avoid probate upon the death of the initial bank account owner.

You deserve the peace of mind that comes from knowing your loved one’s financial future is secure. To protect your hard-earned assets from the predatory interests of outsiders, you should consult with an experienced and knowledgeable Florida estate planning attorney today.

About the Author:

Christopher Q. Wintter is the founder of Wintter & Associates, P.A. and a board-certified expert in Trust and Estate matters by the Florida Bar. With more than 24 years’ experience as a practicing attorney, he also serves as an instructor and faculty member for the National Institute of Trial Advocacy (NITA)—the nation’s leading provider of legal advocacy skills training to practicing attorneys—and has earned the AV® Preeminent™ rating with LexisNexis Martindale Hubbell. He was also selected for inclusion in Florida Super Lawyers for 2011 and 2012 in Estate and Trust Litigation.