One of the most common questions asked about estate planning is whether it helps protect assets from creditors. It’s a valid question. Most people are concerned about this because they want their heirs to access their assets in the future.
Is Estate Planning Necessary to Protect Assets from Creditors
When someone dies, an estate administrator is appointed. One of the responsibilities of the estate administrator is to inform creditors of the death. The creditors are given a certain amount of time to file claims.Those claims are reviewed. Before the administrator can release anything from the estate to heirs and beneficiaries, valid claims must be paid. And sometimes, those payments must come at the expense of the assets. So, yes,estate planning is necessary to help protect assets from creditors.
Asset Protection in Estate Planning
The most common assets that should be protected are the home, any retirement accounts, and taxable income the deceased earned before their death. Of course, the assets that need protection depend largely on a person’s desires, debt amounts, and the assets owned. The reason why debt amounts matter is because a person may decide during the estate planning process that they’d rather ensure everything is paid off to help their family not deal with the stress of creditors than they are protecting some of their assets.
Protecting Assets: Think about the Family Home and Other Real Estate
California has a homestead exemption. This could help ensure that your family home is protected from creditors. Just keep in mind that the homestead exemption only applies to your main residence. It does not apply to other real estate that you may own. Before you consider transferring the title to your main residence or other real estate to your spouse, child, or other heirs, talk to an estate planning lawyer. You certainly don’t want to get in legal trouble for what may potentially be considered a fraudulent transfer.
Protecting Assets: Providing for Your Family Through Your Retirement Accounts
While employer-sponsored retirement plans may be safe from creditors, cashed out accounts and other types of retirement accounts may be subject to collection. Talking with an estate attorney can help you determine the best methods to protect your retirement accounts, life insurance policies, and annuities from creditors upon your death. This could help you continue to provide for your family after you’re gone.
Protecting Assets: Consider Using the Right Trust for Your Assets
Not all trusts act in the same way. To help protect assets, talk with a lawyer to choose the trust that will best meet your needs and fulfill your goals.