A Good estate plan accomplishes four objectives.
First, a good estate plan lets you control your property during your life as long as you’re able. But, at some point, you might become incapacitated or disabled.
Second, a good estate plan provides for you and your loved ones if you become incapacitated or disabled. Your estate plan designates individuals you choose to make personal, financial and medical choices when you’re not able to do so.
Third, a good estate plan lets you give your property to whom you want, the way you want, when you want. For example, if you give property to a child with a career in a lawsuit-prone profession, you can ensure that your child’s creditors can never reach this inheritance.
Finally, a good estate plan minimizes the professional fees, court costs, and taxes otherwise associated with your estate.
A good estate plan consists of at least four key documents: a revocable living trust, a will, a durable power of attorney, and an advanced health care directive. Stay tuned, and we’ll discuss the role each document plays in your estate plan and how they work together.
The IRS’ new valuation rules have a bright side for asset protection planners. Recently, the IRS adopted new rules barring the steep discounting of an asset transferred to a family limited partnership. These transfers make up a staple of estate planning for wealthy families and individuals. However, guru Jay Adkisson says the new rules will make it harder to set aside fraudulent transfers. Now, an individual transferring assets to a family limited partnership entity can argue they received reasonably equivalent value. Family limited partnerships and limited liability companies are excellent asset protection vehicles. A judgment creditor can reach assets of the partnership only through a charging order, one of the least effective collection techniques in a collection attorneys’ arsenal.
Most importantly, determine whether it will solve your problems
Before deciding whether you should file, understand what bankruptcy will and won’t do for you. It won’t solve every problem or get rid of every debt.
You should determine whether your debts are a symptom of a different problem. If you’ve been unemployed, you might not want to file until you’re employed again. If you have a spending problem, you might not want to file until you discipline yourself to handle your money better. You may want to consult with an experienced bankruptcy lawyer to help you analyze this.
Understand the different types of debts
Whether bankruptcy is the right choice depends in large part on the type of debt you have. There are two main types of debts: secured and unsecured. The most common secured debts are home loans and car loans. Filing will discharge most unsecured debts. But, to keep your home or car with secured debts, you must keep paying your loan. It is important to know the difference between the types. Some debts are both secured and unsecured.
Understand what debts a bankruptcy will discharge
It may not get rid of all your debts, but it will get rid of credit card debt, past utility bills, medical bills, court judgments and wage garnishments. Other debts, as well as any past due payments, such as home loans and car loans, can be paid through a Chapter 13.
Understand what debts a bankruptcy will not discharge
Some debts won’t be discharged through bankruptcy. Common debts that survive include alimony and child support, student loans and recent taxes, as well as debts incurred through fraud. You might be able to get rid of tax debts older than three years.
The National Association of Consumer Bankruptcy Attorneys (NACBA) provides more information on its website.
This family consulted me a couple of years into the economic downturn. They desperately needed a fresh start. The husband, a professional, operated his own practice. The practice thrived during the economic boom when patients had extra income. But, during the recession, patients and revenue fell drastically. Originally, they wanted to save their home by eliminating the second and third mortgages. They’d used to keep the business afloat. Because their debt exceeded the Chapter 13 debt limit, they had to file a Chapter 11 bankruptcy.
During our initial conversations, the family decided to close the practice. They were already leaning this way before they consulted with me. But, my bankruptcy consultation with them made this decision easy. I walked them through closing the practice and turning over their leased offices to the landlord before their bankruptcy filing. Usually, it’s easier to navigate this before a bankruptcy because you have a little more flexibility.
We prepared and filed their Chapter 11 bankruptcy petition. Due to the practice, the petition contained lots information. Shortly after the filing, the couple sat through a day of Chapter 11 hearings in bankruptcy court. After this, the couple quickly decided the Chapter 11 route wasn’t for them. So, they converted to a Chapter 7 bankruptcy case. The Bankruptcy Code usually permits debtors to change course once during a bankruptcy without too much difficulty.
After the Chapter 7, the family kept their accumulated college savings for their two kids. More important, they kept their qualified retirement plans, which exceeded $300,000. Finally, shortly after the end of the bankruptcy case, the husband found another job earning several times more than he had prior to his bankruptcy.
Careful listening at the outset, as well as an open discussion of their potential options, helped us hone in on this family’s highest priorities for post-bankruptcy life. So, I could give them the best legal advice so they could make their highest priorities happen.