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Can you protect your assets against bankruptcy with estate planning?

On Behalf of | Jan 7, 2021 | estate administration & probate |

As you work on your estate plans, one of the things to look into is setting up a trust. An irrevocable trust helps you protect your assets as you age and keeps them safe. It may also lower your tax burden and prevent the loss of assets if you are in debt and face bankruptcy.

There are a few ways to shield your assets, including holding them in retirement accounts or in trusts. Here’s more information that you should know. 

Will any kind of trust shield your assets against bankruptcy?

There are two kinds of trusts, revocable and irrevocable. Revocable trusts will not shield your assets, because the property in any revocable trust does have to be disclosed in bankruptcy. In an irrevocable trust, your property is protected, because it does not have to be disclosed. However, there are exceptions. For example, if the trust was funded shortly before you filed for bankruptcy, then the court may rule on the side of the creditors and make you repay them using those or other assets.

Other kinds of accounts can also shield your assets, such as retirement plans like IRAs and SEP accounts. There are limits on those accounts, though. For example, SEP accounts are subject to a $1 million limitation.  

Using life insurance as a way to fund a trust is a good way to protect your children’s inheritances, too. Those benefits go straight to the beneficiary instead of remaining in your possession. 

As you can see, there are options to help protect your assets against creditors and collections. If you’re worried about the debts you have and a possible bankruptcy affecting your assets and your estate, speak to an experienced advocate today.