When developing an estate plan, most people have a solid idea of who they want to receive their most personal assets, from the family home to the coveted baseball card collection. However, very few people tend to think about how creditors can easily take away those beloved assets from their beneficiaries.
As Forbes recently noted, many creditors will seek payments or compensation for unpaid debts through the probate process where family members, friends and other beneficiaries will have to fight for what are rightfully their possessions.
3 ways to ensure that your estate is protected
Luckily, there are ways to protect your estate from creditors and also shield your beneficiaries from a nasty probate process:
- Funding a protective trust for a spouse or children – Protective trusts are designed to specifically protect property in an estate. they are usually developed and assigned to a beneficiary who receives an annual income from the trust. These trusts can be specialized for different needs or functions depending on what you want the trust to do for your family members.
- Transfer your assets in return for interest in an LLC or LLP – Transferring your assets to an LLC allows them to stay protected under the company. However, it needs to be treated similarly to any other business asset.
- Conduct a transfer that exchanges an annuity for protection from creditors – You can establish an annuity that allows you to exchange assets for a right to receive payments over time. They are relatively common through insurance policies but do include some tax-related consequences.
While these three options tend to work well, it’s best to analyze each option with your specific estate plan in mind before implementing any changes. Doing so will yield the best results for you, your estate plan and your beneficiaries.