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How Do I Protect My Assets from Creditors?

When preparing your estate plan, you will most likely want to do everything in your power to protect your assets and make sure they pass to your loved ones with as little struggle or hassle as possible. However, this is rarely straightforward. While you may go to great lengths to avoid the probate process, this is only half of the battle. If you have any outstanding debts upon your passing, your creditors will likely take action to try to recover the outstanding funds, which can lead to a burden for your loved ones and lost assets.

Revocable Living Trusts

Most people know that protecting their assets from probate can usually be achieved by your garden-variety revocable living trust, and this is what most people will do. Many people, however, don’t go beyond this step when it comes to protecting their assets. While a trust can help you and your loved ones avoid probate, it doesn’t protect your assets from the clutches of creditors.

When you set up a living trust and name yourself as the trustee, you still in essence own and control everything in the trust, so you may choose to add to it, take assets out, sell them, and more. Also, because the trust is revocable, you can revoke the trust at any time and everything in it immediately falls back under your name. Additionally, any money generated by property placed in a trust is claimed on your personal tax return every year—even though a trust is technically a unique entity, revocable trusts do not pay taxes, so you must pay them on its behalf.

Because you still have such a high degree of control over a revocable trust, it is assumed you own and control everything in it. And because you have such a high degree of control, creditors can take legal action against you or your estate in an effort to recover any outstanding debts when you pass away.

How to Protect Your Assets

Depending on how much debt you have accumulated and the amount of assets you have, you may want to consider estate planning options that do protect from creditors. The first option is an irrevocable trust, which is like a revocable trust only you do not have the ability to revoke the trust and you do not control any of the assets that are placed into it. In essence, because you do not have the ability to manipulate or recover any assets placed in one of these trusts, creditors cannot gain access to them, almost as though you no longer own them.

Another fairly simple solution is to simply place your money into assets that the state of Arizona protects from creditors. For example, if you have to declare bankruptcy, you have the ability to keep the money in your retirement plan accounts. You may wish to place more of your funds and assets into these locations in order to prevent creditors from being able to gain access to it. However, there are restrictions on how these are passed to your loved ones.

Finally, if you do have a fair amount of outstanding debt, it’s a really good idea to purchase a quality life insurance plan. Life insurance that is collectible upon your passing can provide your loved ones with funds that they need to pay off your debts, resolve your affairs, and much more. One of these policies can help your loved ones have a smoother transition into life after your passing.

If you need assistance developing a high-quality estate plan that protects your loved ones and your assets from creditors, probate, and more contact Taylor & Lihn, PLLC. Our Phoenix estate planning lawyers have nearly 30 years of combined experience delivering results-driven counsel and quality estate planning documents that can withstand scrutiny in court to protect your loved ones in the future. We handle each case with the highest standards of professional conduct in order to make you feel comfortable through every step of the process.

Trust your estate to the capable team at Thies & Lihn, PLLC! Contact us today by dialing (602) 900-9860 to request a free consultation.

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