Many people opt to create a will when they are estate planning as this type of legal document allows individuals to stipulate how they wish for their assets to be divided and distributed after they’ve departed. Once a will has been established, many people wonder what could happen to their will if they die while they are in bankruptcy. Bankruptcy can affect an individual’s estate and whether beneficiaries can receive what they were intended to as the decedent’s debts must be paid off. Please read on and contact an experienced Montgomery County Estate Planning Attorney who can help you understand how bankruptcy could affect the conditions of your will.
How does bankruptcy impact my will in Maryland?
A will allows individuals to specify to whom they want their assets and property to be distributed after they’ve passed away. As mentioned above, many people wonder how bankruptcy affects their will. Essentially, if a person dies while they are in bankruptcy, their beneficiaries will not receive anything until their debts have been paid off. Just because a person dies does not mean their bankruptcy case automatically dies with them. If a person dies while they are in bankruptcy their beneficiaries will only be permitted to receive what is left of the estate after the debts have all been settled. If it is a Chapter 7 bankruptcy case, the trustee will be required to sell the estate and use that money to pay off creditors. If it is a Chapter 13 bankruptcy case, the trustee must either request that the case be dismissed or they must seek repayment during probate. In the end. the estate executor and trustee are responsible for handling the decedent’s debts.
How can I avoid this issue?
One effective way to ensure your assets are transferred to your beneficiaries regardless of bankruptcy is by creating an irrevocable trust. An irrevocable trust is a type of trust that allows a grantor to keep assets aside for their intended beneficiaries. Regardless of whether you file for bankruptcy, the money inside an irrevocable trust cannot be touched by creditors. This is because this type of legal arrangement cannot be terminated and the terms cannot be amended after it has been established. In the case of an irrevocable trust, creditors cannot assess this money. Instead, the assets inside will be transferred to the grantor’s beneficiaries. Nevertheless, a person cannot intentionally create an irrevocable trust to avoid debt. It is imperative to create an irrevocable trust before any financial issues are incurred.
If you are wondering what will happen to your will if you die while bankrupt, please don’t hesitate to get in touch with one of our qualified and skilled attorneys who can help you understand the complexities of this situation. Our firm is committed to helping our clients protect their hard-earned assets for the future.