Navigating through bankruptcy can be a daunting experience. Once the dust settles, you may find yourself wondering what steps to take next. You may feel vulnerable and anxious about protecting your remaining assets, property, and most importantly, the well-being of yourself and your loved ones. That’s where an estate plan comes in as a guiding light to help you navigate through the uncertainty of the future. By creating an estate plan, you can ensure that your accounts and property are protected, and your loved ones are taken care of, even in the most challenging times.
Protecting Your Assets from Bankruptcy
After filing Chapter 7 or Chapter 13 bankruptcy, it’s likely that you have less money and property than you did before. But some of your assets were protected under federal or state law during the bankruptcy process, and they still have value. It’s important to create an estate plan that protects these remaining assets, and here are some key elements to include:
1. Last Will and Testament
A will is a legal document that allows you to plan for what happens to your property and belongings after you die. In the will, you choose someone to be in charge of handling your affairs and distributing your money and property to the people you want to receive them. However, if you only have a will and you pass away owning property or accounts in your name alone without a beneficiary designation, your loved ones will need to go through a legal process called probate to transfer ownership of those assets.
2. Revocable Living Trust
A revocable living trust is a legal document you create during your lifetime to manage your property. You are the trustee, and you can choose a co-trustee or successor trustee to take over if you can’t manage the trust yourself. You transfer ownership of your accounts and property to the trust and retain the ability to use and enjoy them. The trust agreement outlines how the trust property should be used during your life and after you die. Unlike a will, a revocable living trust avoids probate court. However, it does not protect your property from creditors. If you are considering creating a revocable living trust, make sure your bankruptcy proceeding is closed first. Transferring property or accounts during bankruptcy could be seen as fraudulent or voidable.
3. Beneficiary designations
After bankruptcy, you may still have certain accounts or policies, like life insurance or retirement accounts. It’s important to properly fill out the beneficiary designations for these accounts, so the money goes to the people you want it to. If you don’t fill out these forms, the money could end up going to your estate, which means your loved ones would have to go through the probate process. This can be expensive and time-consuming. Also, if your retirement account goes through probate, it could end up with unintended income tax consequences.
How Can Estate Planning Help During Bankruptcy?
An estate plan is not just for planning for what happens after death, but also for making plans in case you become unable to make decisions for yourself. This is called incapacity. It’s important to think about who you would want to make decisions for you in such a situation, such as medical decisions or financial decisions.
If you don’t have a legally enforceable document that specifies your choices, a judge will have to choose someone for you according to your state’s law, and this person may not be who you would have wanted. Here are some serious questions you should consider:
- Who will make financial decisions for you if you are unable?
- Who will make medical decisions for you if you are unable?
- What are your wishes regarding end-of-life care?
- What medical treatment do you want if you are diagnosed with a terminal illness or are in a persistent vegetative state?
- Who will care for your minor children?
We’re here to support you in moving forward by safeguarding your assets for you and your loved ones. Reach out to us so we can talk about creating a personalized estate plan that meets your specific goals.