Bankruptcy and Your Estate Plan
Everyone has the right to file for bankruptcy, and everyone who is old enough to know the word “bankruptcy” needs an estate plan. Therefore, if you are looking for a reason to procrastinate getting started on your estate plan, bankruptcy will not fly. Successful estate planning does not require you to be rich, but it does require you to be strategic. You can file for bankruptcy whenever you choose, as long as at least eight years have passed since your last bankruptcy filing. Estate planning decisions you make in the months and years leading up to your bankruptcy filing can jeopardize your case. A Bronx estate planning lawyer can help you understand how a previous or upcoming bankruptcy filing might affect your estate plan and vice versa.
Estate Planning May Be a Game, but Filing for Bankruptcy Is Not
The ultimate goal of estate planning is to be able to afford long-term care and other expenses in your old age and, if possible, for your family to inherit property from you after you die. The straightforward way to do this is simply to earn as much money as possible, but the gamification part comes in when you use strategies to ensure that as great a share of your wealth goes to your heirs, while as little as possible goes to creditors and the IRS. If you are of considerable means and in good health, estate planning lawyers encourage you to buy long-term care insurance and to designate some of your property as non-probate assets, such as by establishing a revocable trust or designating a payable upon death beneficiary for your bank account. If it is clear that, if the need arises, your only option for paying for nursing home care is Medicaid, then your strategy should focus on ensuring that you qualify for Medicaid. If this requires you to spend down your assets intentionally, you must do this early and gradually, to avoid running afoul of Medicaid’s five-year lookback rule.
Federal law gives everyone the right to file for bankruptcy. If you have a revocable trust, the assets in the trust belong to the trust instead of to you. Creditors cannot claim repayment of debts from your trust. This protection from creditors is one of the main reasons that revocable trusts are such a popular estate planning tool, in fact. If you set up a revocable trust years ago, this does not disqualify you from filing bankruptcy; likewise, the bankruptcy court cannot order you to dissolve the trust and use its funds to pay your creditors. It can, however, use your trust as a reason to reject your bankruptcy case or refuse to discharge some or all of the debts you are seeking to discharge. The risk of this happening is greatest if you recently established the trust or if you have recently transferred property to it.
Schedule a Confidential Consultation With a Bronx Estate Planning Attorney
An estate planning lawyer can help you revise your estate plan if you have recently filed for bankruptcy. Contact Cavallo & Cavallo in the Bronx, New York to set up a consultation.
