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Helping People Age with Dignity

Helping after-death gifts go to your loved ones rather than their creditors

When a person sets up an after-death gift of assets to a loved one, they generally want as much of that after-death gift to go to their loved one as possible. Thus, one thing they might be concerned about is the possibility of portions of the gift being directed away from their loved one towards others. An example of a type of such asset redirection that one might be worried about happening after their death is their loved one losing portions of the gifted assets through creditor actions or lawsuits.

When a person is worried about such things, they may wonder what they can do to help prevent such redirections from occurring after their death. Thankfully, there are estate planning steps that can be taken to try to ensure that after-death gifts left to a loved one do in fact end up going to the loved one rather than to the love one's creditors or other individuals with monetary claims against the loved one. For example, trusts can sometimes prove useful in furthering this goal.

Among the many types of terms that can be included in trusts are terms:

  • Limiting what trust assets can be used for to specific kinds of expenditures (like paying for a beneficiary's education needs).
  • Giving a trustee the discretion to withhold a distribution of assets if they feel the distribution would be targeted by a beneficiary’s creditors.
  • Prohibiting the transfer of trust assets to individuals other than the beneficiary.
  • Banning the beneficiary from transferring their interests in the trust to others, such as creditors.

These terms, when included in a trust, can sometimes help ensure that assets in the trust go towards the benefit of the named beneficiary rather than to the beneficiary's creditors or others.

Elder law and estate planning attorneys can help individuals who are worried about the possibility of their beneficiaries losing the inheritance they are going to leave them understand what steps they can take to try to help ensure the inheritance they end up leaving actually goes to their beneficiaries and whether setting up trusts may be something they should be considering.

Source: AARP, "Make Your Estate Creditor-Proof," Lynnette Khalfani-Cox, July 30, 2015

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