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Attorney Nicholas G. Farha

Four ways to shield your estate from creditors

On Behalf of | Dec 6, 2023 | Estate Planning

Even if you’ve worked hard to build up your wealth with the intent of leaving it all to your family, without effective estate planning, your assets can be quickly gobbled up by hungry creditors. This can leave your loved ones without the support that they need and that you intended for them, which is nothing short of tragic.

Fortunately, if you take the time to create a detailed, thorough, and effective estate plan, then you can shield your wealth from creditors. To get to that point, though, you need to know what options are available to you. Let’s delve into some of them so that you can start thinking about what sort of estate plan is right for you.

Estate planning vehicles that can shield your wealth from creditors

You have options when it comes to protecting your wealth from creditors. Here are some of the most commonly utilized estate planning vehicles that could help you do just that:

  • Irrevocable trusts: Through the establishment of one of these trusts, you transfer ownership of the assets to the trust, but you also can’t reverse the transaction. Since you’ve completely relinquished ownership of the assets placed into one of these trusts, creditors lose the ability to reach those them. There several types of irrevocable trusts you can use, too, including a spendthrift trust and discretionary trust to limit the release of assets, a special needs trust to care for a loved one with medical needs, and a charitable remainder trust to support a cause in which you believe.
  • Accounts with pay-on-death provisions: Several accounts allow you to name a beneficiary to whom assets will be paid once you pass away. This creates a direct transfer of wealth, oftentimes unimpeded by creditors’ reach. Checking, savings, and individual retirement accounts can be subjected to these provisions. It’s worth noting, though, that some of these assets could be claimed by creditors in probate court, but they have a lot of leg work to successfully do so.
  • Lifetime gifting: While you’re still alive, you can transfer up to $17,000 a year to each individual. This gifting is exempt from taxation and outside the reach of creditors. It also allows you to see your loved ones enjoy your wealth while you’re still around.
  • Certain business structures: Another option is to transfer some of your wealth to a newly created business, such as a family limited partnership. Since these assets then become owned by the business and the partnership, it becomes much more difficult for your individual creditors to reach them.

As you can see, there are a lot of different approaches you can take to try to protect your wealth from creditors. By doing so, you can ensure that those assets are passed down to your loved ones just as you envisioned. That said, this process isn’t automatic, so you need to be proactive in developing the estate plan that’s right for you and your family.

Do you need further guidance in the creation of your estate plan?

If so, then take comfort knowing that help is available. There are a number of resources online to help give you a basic foundation of what to expect and what to look for when creating an estate plan, but we discourage you from trying to create an estate plan on your own, as the DIY process can be fraught with dangers that can threaten the legal viability of your plan.

So, if you’re ready to get started on your estate plan, then now is the time to read up on the process and look for any additional assistance that you may need. We hope that our blog and rest of our website will prove beneficial in that regard.