Inheritance and bankruptcy are two topics that are not commonly thought of at the same time, nor is inheritance even thought of as a consideration when deciding to file bankruptcy. The issue being that if you file for bankruptcy and receive an inheritance within 6 months of filing, you could loose your entire inheritance to your bankruptcy estate. In other words, your bankruptcy trustee will take your inheritance from you and use it to pay off your debts. The majority of most people who file for bankruptcy have not taken into account the possibility of receiving an inheritance, and as a result, are naturally devastated when they learn they do not get to keep their inheritance as they expected. To put it simply, if you believe you may receive an inheritance within the next 6 months, you may need to wait to file for bankruptcy.
But what if you cannot wait to file bankruptcy due to an imminent foreclosure sale date or garnishment? Can anything be done to save your inheritance? An even less thought about concept is the planning your parents, or any other person who may leave you an inheritance, can do. By simply establishing the right kind of estate plan, your parents, or anyone else for that matter, can protect your inheritance from being taken by a bankruptcy trustee. By having any person who may leave you an inheritance include something known as a “spendthrift provision” in their will or other estate planning documents, your inheritance should be able to be protected if you find yourself in the difficult position of having to file for bankruptcy.
What is a “spendthrift provision” you may ask yourself? It is a provision found in a will or trust document that allows a personal representative or the trustee of a trust to first look to see if a beneficiary is in the middle of a bankruptcy or if they are about to file for bankruptcy before giving the beneficiary their inheritance. Simply put, the personal representative or trustee can first look both ways before crossing the street to make sure it is safe to give the inheritance to the designated beneficiary. If it is not safe, then the personal representative or trustee can take the appropriate steps to ensure the inheritance will not be lost.
Protecting inheritance is not something the normal bankruptcy attorney or client thinks about. However, at the Law of David M. Goldman, PLLC our attorney’s are not only experienced in bankruptcy law, but they are also experienced in estate planning and asset protection. Having an attorney who is experienced in understanding bankruptcy law as well as estate planning, and how each can affect the other, can be a very vital asset when preparing to file for bankruptcy. Contact the Law Office of David M. Goldman, PLLC today at (904) 685-1200 for a free initial consultation.