Estate Plans and Bankruptcy: How are Your Assets Affected?

estate planning and bankruptcyBankruptcy is one of those events in life where even a well-structured asset protection plan can fail you. If you find yourself facing bankruptcy or you have just completed a bankruptcy, you may wonder how this impacts your retirement planning and overall estate plan.

While bankruptcy does have a significant impact on your estate plan, you should not feel devastated. When you work alongside a qualified estate planning attorney, you can put together a plan that protects your assets and helps you still plan for the unexpected regardless of your current asset situation.

Do Not Cash Out

You might be tempted to cash out your retirement accounts to protect them, but that is the opposite of what you should do. Retirement accounts are typically protected from creditor actions, therefore, cashing them out puts your retirement money at risk.

Retirement Accounts are Exempt – Typically

Bankruptcy debtors might retain certain retirement accounts. Qualified retirement accounts include:

  • 401(a)
  • 403(a)
  • 403(b)
  • 408
  • 408A
  • 409

Basically, qualified retirement accounts include any assets or funds that are paid via beneficiary forms, or in the interest of a beneficiary, into a retirement or profit sharing plan according to the Internal Revenue Code of 1986.

Assets that May be Affected in Bankruptcy

Some assets are not protected when you file for bankruptcy; therefore, these assets will be affected and your estate plan may require restructuring after you have completed bankruptcy.

These assets include:

  • The Family Home – In most bankruptcy cases, you would not lose your home. If, however, you have fallen behind on that home and it is foreclosed on, then you would need to remove that home from your estate plan.
  • Investment and Savings Accounts – While retirement accounts are protected from bankruptcy, your investment, brokerage, and savings accounts are not protected.
  • Jewelry – Expensive jewelry may not be protected. While wedding rings up to a certain value can be protected, other expensive jewelry included in your estate may be liquidated.
  • Luxury Items – Luxury assets, like collections, artwork, vacation homes, and boats are all subject to liquidation. Therefore, if you have included any of these items in your estate plan, that plan will need adjustment after the assets are liquidated.

File for Bankruptcy and Reassess

After the bankruptcy is over, you must sit down with your estate attorney and bankruptcy attorney to create a new estate plan. Your estate planning lawyer will review what assets you have left, adjust your estate plan to reflect beneficiaries and asset distribution, and ensure you have a solid plan.

Concerned about Asset Protection? Speak with an Estate Planning Attorney

If you have recently filed for bankruptcy and need to adjust your estate plan – or you want to protect your assets from creditors, divorce, and other future issues – speak with an estate planning attorney.

Estate planning is more than drafting a will. In fact, it is a powerful method of asset protection that ensures that your wealth will be passed on to loved ones.

To get started, schedule a consultation with the Law Office of Andrew M. Lamkin, P.C. today by calling 516-605-0625. You can also request your free consultation by completing our online contact form.

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