How Estate Planning Can Help Prevent Bankruptcy

When you’ve worked hard to accumulate assets, the last thing you want is for your beneficiaries to lose it all if they find themselves having to file for bankruptcy.  This can happen if your heirs wind up in financial trouble and have to face bankruptcy when their inheritance arrives.

While assets from an estate can be just what people need to prevent bankruptcy, they can be lost if planned incorrectly.  Money or retirement funds that come to your heirs directly have no protection from creditors, lawsuits, or even divorcing spouses.  Those assets are subject to being seized in a bankruptcy, and your heirs may never get to use them.

Fortunately, proper planning can help prevent having your heirs lose their inheritance. The process is complex, so it pays to have the guidance of an experienced attorney when planning your estate. The skilled and seasoned Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer provide a free consultation to evaluate your individual situation and increase the chances of having your heirs keep what you earned.

What Can be Protected?

There are certain things you can do to ensure that your inheritance won’t end up in a bankruptcy estate.  These include:

1) Having a protected trust instead of a will

Property that is left in a will is vulnerable, while a trust is often not considered to be part of a bankruptcy estate – if the trust is done correctly.

If you leave your inheritance in a will, it must go through probate.  Your heirs will have to wait months to collect, and they will have the extra expense and headache of going to court.  If you have creditors, a will won’t protect your estate against them — creditors must be found and notified so they can submit claims against your estate.  Should your heirs wind up facing bankruptcy, their creditors can also submit claims against the expected inheritance.

A trust can offer some protection, but it is imperative that the trust is drafted in a way that ensures the assets are protected from your creditors and your heirs’ creditors.

2) Protecting Your Individual Retirement Accounts (IRA)

IRAs can be protected, although there is an annual dollar limit set by the Internal Revenue Code guidelines.  You should update your estate planning documents to choose beneficiaries for the IRA so that the funds do not need to be included in probate.

In Ohio, the current laws provide that inherited IRA accounts are now exempt and are protected from creditors.  You can also place your IRA funds into a trust to protect the IRA in a bankruptcy proceeding of a beneficiary.

3) Using Exemptions

For a Chapter 7 bankruptcy, there are certain Ohio exemptions of property and assets that the trustee cannot liquidate to pay creditors. If an inheritance consists of exempt assets or if it amounts to less than Ohio’s exemption amounts, your heirs will be able to keep it.

Under Ohio bankruptcy law, 2017 bankruptcy exemptions include:

  • $136,925 home(stead) exemption
  • $3,775 motor vehicle exemption
  • $475 cash exemption
  • $600 exemption on any individual household item or $12,625 aggregate exemption on all household items, including furnishings, clothes, books, etc.
  • $1,600 jewelry exemption
  • $2,400 exemption on profession tools and books
  • $1,250 wildcard exemption that can be used on any property

4) Timing

If you are in a situation where you are gravely ill and do not expect to live long, the timing of an inheritance is significant.  If your heirs wind up filing for Chapter 7 bankruptcy, any inheritance received within 180 days after filing becomes part of their bankruptcy estate, along with the rest of their property. They will not be able to keep it unless it fits within one of the allowed Ohio exemptions. If it is not exempt, a bankruptcy trustee can take the inheritance and distribute it to creditors.

In a Chapter 13 bankruptcy, keeping an inheritance received within 180 days of filing also depends on whether the property is exempt. If the property is exempt, it will not be added to the repayment amount.  If it isn’t exempt, its worth must be added to the amount repaid to unsecured creditors. However, in a Chapter 13 filing, the inheritance may be counted even after the 180 days, because in Chapter 13 the repayment plan remains subject to modifications if your ability to pay increases or decreases.

Contact us for Help and Guidance

The experienced Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer can help you determine the best way for you to deal with an inheritance you wish your heirs to keep and help with all issues that may arise should they be faced with filing for bankruptcy.

We recognize that everyone’s individual situation is different, so we offer a free consultation to evaluate your entire financial picture. We will examine your income, your debts and your goals and help you find the best path ensuring a brighter financial future for your heirs.

Don’t delay — learn more about how our firm can be of assistance today.  Call one of our conveniently located office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) or email for your free consultation so we can determine what financial solutions will work best for you.

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