When preparing your estate plan, you will most likely want to do everything
in your power to protect your assets and make sure they pass to your loved
ones with as little struggle or hassle as possible. However, this is rarely
straightforward. While you may go to great lengths to avoid the probate
process, this is only half of the battle. If you have any outstanding
debts upon your passing, your creditors will likely take action to try
to recover the outstanding funds, which can lead to a burden for your
loved ones and lost assets.
Revocable Living Trusts
Most people know that protecting their assets from probate can usually
be achieved by your garden-variety revocable living trust, and this is
what most people will do. Many people, however, don’t go beyond
this step when it comes to protecting their assets. While a trust can
help you and your loved ones avoid probate, it doesn’t protect your
assets from the clutches of creditors.
When you set up a living trust and name yourself as the trustee, you still
in essence own and control everything in the trust, so you may choose
to add to it, take assets out, sell them, and more. Also, because the
trust is revocable, you can revoke the trust at any time and everything
in it immediately falls back under your name. Additionally, any money
generated by property placed in a trust is claimed on your personal tax
return every year—even though a trust is technically a unique entity,
revocable trusts do not pay taxes, so you must pay them on its behalf.
Because you still have such a high degree of control over a revocable trust,
it is assumed you own and control everything in it. And because you have
such a high degree of control, creditors can take legal action against
you or your estate in an effort to recover any outstanding debts when
you pass away.
How to Protect Your Assets
Depending on how much debt you have accumulated and the amount of assets
you have, you may want to consider estate planning options that
do protect from creditors. The first option is an irrevocable trust, which
is like a revocable trust only you do not have the ability to revoke the
trust and you do not control any of the assets that are placed into it.
In essence, because you do not have the ability to manipulate or recover
any assets placed in one of these trusts, creditors cannot gain access
to them, almost as though you no longer own them.
Another fairly simple solution is to simply place your money into assets
that the state of Arizona protects from creditors. For example, if you
have to declare bankruptcy, you have the ability to keep the money in
your retirement plan accounts. You may wish to place more of your funds
and assets into these locations in order to prevent creditors from being
able to gain access to it. However, there are restrictions on how these
are passed to your loved ones.
Finally, if you do have a fair amount of outstanding debt, it’s a
really good idea to purchase a quality life insurance plan. Life insurance
that is collectable upon your passing can provide your loved ones with
funds that they need to pay off your debts, resolve your affairs, and
much more. One of these policies can help your loved ones have a smoother
transition into life after your passing.
If you need assistance developing a high-quality estate plan that protects
your loved ones and your assets from creditors, probate, and more, contact
Thies & Lihn, PLLC. Our Phoenix estate planning lawyers have nearly 30 years of combined
experience delivering results-driven counsel and quality estate planning
documents that can withstand scrutiny in court to protect your loved ones
in the future. We handle each case with the highest standards of professional
conduct in order to make you feel comfortable through every step of the process.
Trust your estate to the capable team at Thies & Lihn, PLLC! Contact
us today by dialing 602.900.9860 to request a free consultation.