When you began the estate planning process, you were likely considering how you can ensure your assets and estate went to the right people in your life in the event you pass away. However, what many of us do not consider is the possibility of having to declare bankruptcy while preparing end of life wishes. While it may seem like a completely unlikely thing to occur, it could happen that you pass away while in the midst of a bankruptcy filing. If it does, your family should know how bankruptcy can impact the estate process.
Prior to filing for bankruptcy, you may have created a will that outlined your wishes for who you would like to receive certain assets and property. However, if you were in the middle of bankruptcy at the time of your passing, your debts must be paid off before any beneficiaries receive their inheritance.
If you were in the process of a Chapter 7 filing at the time of your death, your case will continue as it had, since your involvement once you file is rather limited. Your trustee will sell any property and assets to pay off what must be. Then, at the conclusion of the case, your beneficiaries will get what is left.
This includes using life savings, property, and other tangible assets to pay off debt.
However, if you had filed for Chapter 13 bankruptcy, the process is a bit different as your survivors and the bankruptcy trustee must petition the court for what the next action is. This can include:
If you are fearful of what can happen to your estate if you die while in the middle of a bankruptcy, contact your estate planning attorney to discuss what types of trusts are available to protect assets you do not want to be used to pay off potential creditors.
You may think your bankruptcy status would be the only thing to matter when you pass, but in reality, if one of your beneficiaries is in the middle of bankruptcy when you pass, this will impact their inheritance.
If you die within 180 days of the beneficiary filing for bankruptcy, he or she must disclose the inheritance to their trustee. In Chapter 7 cases, that inheritance can be used to pay off debts. In Chapter 13 cases, that inheritance will be added to the total amount the beneficiary has available to repay creditors under their replacement plan. This means that what their month’s payments were may increase since they’ve come into more liquid assets.
If you think there is a chance a beneficiary will file bankruptcy, you can rework your will to ensure your assets will not be used to pay off someone else’s debts. Or, you can meet with your estate planning attorney about placing some of the assets in a trust that will protect it from beneficiaries’ creditors.
Part of planning for the future is preparing for the financial ramifications of death. Whether you are preparing for bankruptcy or are worried one of your beneficiaries will likely file for bankruptcy in the future, you need to meet with your estate planning attorney and a bankruptcy attorney to review all of your options.
If you have questions about bankruptcy impacting your estate planning, contact The Jones Law Firm. With offices in Reynoldsburg, Ohio, The Jones Law Firm works with clients in and around Columbus and throughout central Ohio.