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Can you protect your legacy from estate claims by creditors?

On Behalf of | Jul 29, 2022 | Estate Planning |

The average American household has thousands of dollars in credit card debt. Many people also have student loan debts and other financial obligations, like debts for medical care. They spend a significant amount of their monthly income paying down those debts.

You probably expect to slowly pay those debts over the next few years and pass property, not financial obligations, on to your loved ones when you die. However, later in your life when you have less income and after your death, your property will be vulnerable to legal action initiated by your creditors.

An asset protection plan can protect you when you are older and financially vulnerable, and it can help ensure you have property to leave for the people you love.

How debt impacts your legacy

As your income drops when you get older, you may have a harder time continuing to meet all of your financial obligations. Once you fall behind on payments, your creditors may initiate collection efforts, possibly including litigation against you.

Your assets will be at risk in such proceedings. A creditor lawsuit can force the sale of some of your property or even place a lien against your home. People may be able to prevent losing such lawsuits by filing bankruptcy, but a better approach may be to shield your assets from creditor claims before they try to take you to court.

Asset protection planning, often involving the creation of a trust, before a creditor takes you to court can prevent them from laying claim to your home and other valuable belongings. The protection continues after you die. An asset protection plan doesn’t just prevent aggressive collection activity when you are older and have a lower income. It can also preserve your assets so that there is an inheritance for your children and other loved ones.

If you take the time now to protect your assets, you will be less vulnerable to creditor lawsuits while you are still alive and will have protection from claims against your estate or Medicaid state recovery efforts. You may be able to preserve bank accounts or real estate so that it passes to the people you love instead of going to pay off old debt when you die.

Learning more about how you can protect yourself and your desired legacy can help you create a meaningful estate plan.


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