For most people going through estate planning, the goal is to pass on as many assets and as much wealth as possible. Most people don’t engage in estate planning with the goal of paying the most taxes possible or distributing assets to creditors. In fact, creditors can take a bigger chunk out of your assets than taxes can, so if you want to avoid costly claims during your lifetime and upon death that could significantly impact your estate it is important to take proactive steps to protect your assets from creditors as part of a comprehensive estate planning strategy.
In fact, there are several strategies that could help you save on taxes while keeping your assets secure from creditors, though it is important to make sure that whichever actions you choose comply with the Uniform Voidable Transactions Act that covers the transfer of assets in an attempt to defraud existing creditors. Some options for protecting your assets from creditors that comply with the provisions of this act might include:
An outright gift of assets to another person can certainly help keep that asset safe from creditors because it will no longer be in your possession. However, once you gift an asset you will no longer have ownership or control over that asset.
Charitable Remainder Trust
A charitable remainder trust is a mechanism in which you place assets into a trust that is set up to provide someone – usually yourself – with a percentage of the trust’s principal on a scheduled basis. You may set up the trust to distribute this payment to your spouse after your death, and when both spouses are deceased the remaining assets will go to the charity you specify.
Irrevocable Life Insurance Trusts
Irrevocable life insurance trusts can be established to take life insurance principal and benefits out of your estate and place them into a trust. This will help protect any principal you have in them during your lifetime and will also help protect benefits from creditors upon your death.
Qualified Personal Residence Trust
A qualified personal residence trust allows you to transfer ownership of a primary residence or other property to a trust while allowing you to retain the right to live in or use that property. In doing so, you can protect these assets from creditors during your lifetime as well as after your death because the actual ownership of the property is in the name of the trust established for that purpose.
Qualified Terminable Interest Property Trust
This type of trust, often referred to as a QTIP Trust, is complicated but can be very beneficial depending on the individual wealth of each spouse. Basically, you establish the trust for your spouse during your lifetime and after your death it will provide a stream of income for the surviving spouse, allowing the assets to avoid estate tax because of the unlimited marital deduction. When the surviving spouse passes, the trust’s assets will pass to the surviving spouse’s heirs. There are additional mechanisms that can be put into place if you survive the spouse the trust has been established for that will help avoid certain taxes and shield assets from creditors.
Estate Planning Guidance
These are only a few of the options available to you during your life and after your death that can help protect your assets from creditors. When considering estate planning, it is important to work with an experienced estate planning attorney that can help you understand more about the many estate planning options available to you. Estate planning is not a uniform activity where one approach works for everyone, and each of the above possibilities as well as almost all other estate planning strategies have potential benefits and consequences that are affected by your individual circumstances as well as your goals. Consulting with an experienced New York estate planning attorney is the first step in creating a comprehensive estate plan.