How can I protect my assets from creditors?
Most people understand the concept of
estate planning to be creating a last will and testament—or simply a “will”-- stating how you want your assets to be distributed after you die. While that is true in the most minimal sense, comprehensive estate plans go much farther than that.
For example, planning for incapacity, rather than death, must also be considered. In that regard, powers of attorney should be executed appointing trusted agents to manage your financial and/or medical affairs in the event you become sick, disabled, or otherwise unable to do so yourself at any point prior to your death.
What many people don’t realize, is that asset protection planning is crucial to secure your own financial future as well as that of loved ones you want to provide for after you’re gone.
In many cases, creating trusts is recommended to protect your assets from the reach of creditors during your lifetime or from the reach of the creditors of your beneficiaries after you’re gone. Without proper planning, assets you leave your children could be accessible to and wiped out by their creditors, their spouses in a divorce, or even their own financially-irresponsible, spendthrift ways. Because state laws differ, it’s important to seek guidance from a skilled estate planning attorney with a tax background.
Recently, a woman who had inherited an IRA from her mother several years ago filed for bankruptcy believing this inherited IRA would be exempt from her bankruptcy estate and therefore beyond the reach of her creditors.
However, after multiple levels of appeals, and scrutinizing the structure of the IRA and all applicable federal and state laws, it was determined that-- unlike a personal IRA which would be exempt– – an inherited IRA from her parent was not. Had the designated IRA beneficiary been a trust for the benefit of the daughter (rather than the daughter herself as an individual), the funds would have been protected from creditors and enjoyed long-term tax rate deferral and other benefits that come from a trust. It should be noted that some states, however, have specifically carved out exemptions granting inherited IRAs protection from creditors of beneficiaries.
If you have questions regarding asset protection planning, or need assistance with an initial estate plan or modifying an existing one, the Law Office of Thomas J. Hansen can help you. Contact us today to schedule a consultation.
From our office in Park Ridge, we assist clients throughout Cook County, Illinois, as well as Niles, Des Plaines, Glenview, Norridge, and Rosemont in all matters of estate planning and elder law.