Most people, by the time they become seniors or reach retirement age, have an estate plan in place that dictates where they would like their property and assets to go when they die. Considered to be one of the most important legal documents a person can establish, estate plans also require extensive consideration to ensure the right distribution of inheritance to the right beneficiaries.
But as you can imagine, having a fixed income and mounting healthcare costs can easily threaten these carefully laid plans. In some cases, seniors may even be forced to consider filing bankruptcy to avoid leaving their loved ones with an extensive debt burden when they die. This decision does raise an important question, however:
Is any inheritance money protected in bankruptcy?
Unfortunately, drafting an estate plan may not be enough to protect all of your loved ones’ inheritances during bankruptcy. Most funds in a bank account, excluding certain assets like Social Security and some retirement benefits, may be liquidate in bankruptcy to pay off creditors who oftentimes have a priority claim over beneficiaries.
There is a way to protect assets, however, and that is through certain types of trusts. Under Tennessee property exemption laws, assets in a trust may be exempt from a bankruptcy petition as long as the person filing bankruptcy is not considered the beneficiary of the trust.
Seeking legal representation
It’s very important to point out that not all assets in a trust are considered protected or exempt under the bankruptcy code. Whether this fact plays a role in the creating of an estate plan or it raises questions when filing bankruptcy, it’s important to seek counsel from an attorney with knowledge in both areas of the law and has experience helping seniors through bankruptcy proceedings.