Good Credit Doesn’t Mean Your Nest Egg is Safe from Bill Collectors

You’ve worked hard. You’ve built up a nice nest egg. Do you need to worry about creditors getting their hands on it?

You just might!

This is because the money that you leave to your beneficiaries may be at risk if they have money troubles. Even though you may think that leaving money to someone who has money problems may be a lifesaver for them, it may not.

You see, if you leave cash or property to someone as an outright bequest, it becomes their property. And bill collectors will know about it and will immediately begin proceedings to get their hands on it. This means that the money that you worked hard to earn and wanted to leave to your heirs could almost immediately fall into the hands of bill collectors.

This is why I frequently suggest that my clients who have this concern set up a trust for the benefit of the heir rather than leaving money to them outright. The trust needs to be written with very specific language to provide protection from creditors. But if it is written with liberal distribution instructions, it can allow for nearly unrestricted use of the assets while still protecting them from creditors.

Some people mistakenly believe that they can hide their inheritance from bill collectors by investing it immediately into an asset or by gifting it away to heirs. This transfer will most likely be challenged as fraudulent and they may have to transfer it back which makes it available to bill collectors once again.

It is important to point out that just because you already have a trust, it does not mean that you have this protection. You need specific language in your trust to ensure that the assets are transferred in the right way.

If you have concerns about your heirs and you want to protect your hard-earned assets from bill collectors, be sure to meet with an experienced Bay Area estate planning attorney who can help you protect it.