Creditors and Estate Planning

Your estate plan is your legacy that you extend to the people you care about, and as such, it addresses your wealth and assets (whether these are modest, quite grand, or somewhere in between). Additionally, however, your outstanding debts will flow through your estate, and you want to ensure that yours are addressed in a manner that benefits your estate rather than detracts from it. When it comes to creditors and estate planning, it is important to consider them in tandem. The Texas estate planning attorneys at Ibekwe Law, PLLC have considerable experience addressing matters related to creditors and estate planning. Consider visiting with our legal team today at 512-505-2753 to help answer your questions and learn more about your options.

Satisfying Creditors’ Claims

Creditors continue seeking payment until they are notified of the death of a debtor. Once informed, these creditors make a claim on the debtor’s estate in order to settle the debt in question. Once a creditor makes a claim against an estate, it is either paid or denied by the estate, but if it is denied, the creditor can pursue the matter in court. The person you assign to administer your estate (your executor) will be responsible for addressing these creditors’ claims, and all such debts typically must be satisfied before any assets can be distributed. Further, certain debts, such as taxes and those generated by the decedent’s funeral take precedence over other debts.

Asset Protection

The matter of creditors and estate planning is an important topic that should be addressed early in your estate planning journey. The fact is that creditors and the legal judgments they often propel can wear away at the legacy you have poured your blood, sweat, and tears into, which is why you should not neglect asset protection.

While certain debts must, of course, be covered through your estate, there are other –possibly unforeseen –situations that can deplete your estate if you do not apply the appropriate due diligence early on. The fact is that the assets you leave your heirs become subject to their debts upon transfer of ownership (this includes difficult situations, such as if any of your heirs’ soon-to-be exes are seeking an equitable distribution of marital property).

Steps to Take to Protect Your Estate from Creditors

There are, however, steps you can take to better protect your estate, including the following:

●An irrevocable trust is a mechanism for transferring assets to a distinct legal entity that is not vulnerable to creditors or legal judgments and that can also allow you to bypass probate.

●Once your life insurance proceeds are distributed to your beneficiaries, the funds are no longer invulnerable to creditors. By funneling the funds into an irrevocable life insurance trust, you can help protect them from creditors and any soon-to-be exes alike.

●An IRA trust allows you to funnel your IRAs to your beneficiaries via a separate trust, which can help protect the funds from your creditors and theirs. Gone are the days that IRA inheritances are protected from creditors.

●A payable-on-death (POD) or transfer-on-death (TOD) designation allows you to transfer bank accounts directly to your heirs upon death, which means the accounts bypass probate and are not subject to any debts sought by your creditors.

All of these options provide different kinds of safeguards, but it is important to get them right, which makes it important to consider working with a dedicated estate planning attorney at Ibekwe Law, PLLC who will help you strike the right balance regarding creditors and estate planning.

Irrevocable Trusts

An irrevocable trust is such an important tool when it comes to creditors and estate planning that it deserves closer attention. An irrevocable trust amounts to a legal arrangement in which the creator –who is often referred to as the grantor and who is, in this situation, you –transfers ownership of the assets therein into the administrative care of someone else (the trustee) who is charged with administering the assets (in accordance with your exacting plan) for the benefit of your beneficiaries.

Once you establish your irrevocable trust –and this is where the irrevocable part comes in– you no longer legally own the assets therein and cannot alter how they will be distributed when the time comes. In other words, it is complicated, and it is also critical that you move forward with purpose. The asset protection provided by an irrevocable trust can be immense.

An important caveat here is that the court can dismantle your transfer to trust if it determines that your intention was to defraud creditors in the first place. Such acts are considered legally fraudulent and can lead to serious financial consequences. Ultimately, your asset protection efforts should be triggered by your estate planning endeavors –and they should proceed in tandem.

Estate Planning and Considerable Debt

If you have considerable debt, it is important to address the matter sooner rather than later. There are things that you can do now to help you mitigate this financial dilemma, and the practiced estate planning attorneys at Ibekwe Law, PLLC can help you with these legal issues. Consider the following possibilities:

●Giving assets to your heirs while you are alive might be a viable option for avoiding the loss of these assets during probate (when they will be offset by your outstanding debts). There are, however, tax implications to consider.

●You may also consider funding a business enterprise with your assets (in an effort to keep them out of probate).

●Working to pay down your debts, including considering diverse payment-plan options, during your lifetime can also be beneficial.

Your issues as they relate to creditors and estate planning are unique to you and your situation, and they should be addressed on an individual basis.

Look to an Experienced Texas Estate Planning Attorney for the Legal Help You Need

If you have concerns related to creditors and estate planning, the accomplished estate planning attorneys at Ibekwe Law, PLLC in Texas are committed to helping you find the right estate planning tools for you –while we help you affect a solid estate plan that bolsters your peace of mind and helps preserve your legacy for your loved ones. To learn more, please do not hesitate to contact or call us at 512-505-2753 today.

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