Bankruptcy can be incredibly stressful for anyone to go through. Once your matter has been closed, you may wonder what the next steps are. To ensure that you protect your remaining accounts and property, as well as yourself and your loved ones, we encourage you to consider an estate plan as your roadmap into the future.
Protecting Your Money and Property
Whether you filed for Chapter 7 or Chapter 13 bankruptcy, it is safe to assume that you now have less money and property than you had before. However, during the bankruptcy process, certain accounts and pieces of property were protected under a federal or state exemption. These remaining assets still have value and need to be protected through a proper estate plan that includes the following elements:
- Beneficiary designations. For any accounts or policies you have retained after the bankruptcy (such as a life insurance policy or retirement account), it is important that you properly complete the beneficiary designations. If you fail to complete these forms, the money may be paid to your estate, necessitating the costly and time-consuming probate process, or it may go to individuals according to the order outlined in the governing agreement. In addition, going through probate may subject your retirement account to unintended income tax consequences.
- Last will and testament. In this document, also called a will, you name a personal representative or executor (the person who collects all of your accounts and property, pays your outstanding debts, and distributes the money and property to those you have named), specify who will receive your accounts and property at death, and name a guardian for any minor children. Using a will requires your loved ones to go through the probate process if you die owning accounts or property in your name alone without a beneficiary designation.
- Revocable living trust. This is a type of trust created during your lifetime in which you name yourself as the current trustee and designate a co-trustee or successor trustee to serve if you become unable to act for any reason. During your lifetime, you change ownership of your accounts and property from yourself as an individual to yourself as the trustee of the trust or designate the trust as the beneficiary of your accounts and property. You retain the enjoyment of the property by also being named as the trust's beneficiary. The trust agreement outlines how the money and property are to be used during your life, if you become incapacitated, and at your death. With this document, management of the trust's money and property occurs outside of the probate court. It is important to note that a revocable living trust does not provide you with any asset protection benefits. Caution: Before you change the ownership of any accounts or property, it is important that the bankruptcy proceeding be closed. Transferring accounts or property during the proceeding could be seen as fraudulent or voidable.
Additional Protections an Estate Plan Can Provide
While planning for death is usually the main motivator for creating an estate plan, we also focus on planning for what will happen if you become unable to make decisions for yourself (known as incapacity). Everyone should consider the following serious questions. If you do not select the people you want in these roles and make your choices known in a legally enforceable document, a judge will be tasked with selecting someone based on your state's law, and they may not be the people you would have chosen.
- 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 know that you have been through a lot. We want to help you start this new chapter on the right foot by protecting your money and property for you and your loved ones. Call us so that we can discuss ways to customize an estate plan to meet your unique objectives.