Tag: debt

What Is a Spendthrift Trust in Illinois?

If you have a relative who is bad with money but needs support, you may want to form a spendthrift trust. Many people have someone close to them who cannot manage their own money. A relative may have a gambling problem, have a mental impairment, have a lot of debt, or just need help handling finances. You might be surprised to learn that estate planning could allow you to provide for and protect a family member who is like this.

The Perils of Supporting a Family Member Who Is Bad with Money

You may think that giving money outright to a relative is the best option, even if he or she is bad with money. Or you might want to put money in an ordinary trust for the relative’s benefit. Neither of these methods are usually your best option for a few reasons:

  • Your relative may spend all the money right away
  • Creditors could access the money (even if in a trust) to satisfy debts
  • You may owe gift taxes depending on the size of your gift
  • You lose any control over how the relative spends the money

Instead, consider starting a spendthrift trust to both provide for and protect your relative.

What Is a Spendthrift Trust?

A spendthrift trust is a special type of trust that give the trustee full authority to decide how to spend trust distributions for the beneficiary’s benefit. The trust’s language explains how often the trustee needs to make distributions and may specify the amount to be spent. In addition, the trust language must include a special “spendthrift clause” explaining the settlor’s intent that the trust be a spendthrift one.

Because the beneficiary of a spendthrift trust has no authority to spend or receive trust distributions as he wishes, most creditors cannot access those distributions to satisfy debts. The typical exceptions are debts like child support, alimony, and payment for “necessaries” like food and shelter.

It is very important that your spendthrift trust include the necessary language and have an appropriate trustee. If the trust is not set up right, creditors could go after the distributions and your trust would not have the effect you expected. Talk to a lawyer about how to set up a spendthrift trust to benefit a relative.

Want to create a spendthrift trust or another type of trust? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

Can Creditors Seek Repayment of Debts from Your Estate?

If you are in debt, you might hope that the creditors will go away after you die. Your relatives shouldn’t have to pay back the debts that you owe, right? Unfortunately, the law does allow creditors to seek repayments of debts from your estate.

How Can Creditors Get Paid from Your Estate?

After you pass away, your executor or representative will gather your assets and distribute them to your heirs. Before your heirs get anything, though, the executor must notify creditors of your death. The creditors can choose to assert claims against the value of your estate.

These claims get paid off before your heirs receive any money. If you do not have liquid assets, like cash, the executor may need to sell things to raise cash for the debts. If your debts exceed the value of your assets, then each creditor will be paid for a portion of his or her claim. But your heirs will receive nothing.

Asset Protection Strategies

There are ways to protect your assets from creditors, even after death. Creditors can only make claims against your estate – that is, everything that you owned individually before your death. Assets owned by a trust or business, or those co-owned with a second person, may be protected from creditor access. However, creditors may be able to access business assets if you were the sole owner, and they could access your portion of co-owned assets in some cases.

Also, there are laws in place to prevent people in debt from “hiding” assets from creditors by changing the assets’ ownership. You must be very careful when setting up asset protection strategies to stay within the law. For that reason, it is often best to think about asset protection before you get into debt. Alternatively, talk to a lawyer to see if you have other options.

As discussed above, creditors can access any assets that are part of your estate. Assets left in trust to beneficiaries that are not your estate, however, are usually protected because the trust owns them, not you. If you plan ahead now by creating a trust, you may save your heirs from disappointment when creditors take a large portion of the assets.

Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

Student Loan Debt and Estate Planning in Illinois

If you have student loan debt and are thinking about the future, you might be concerned that the debt will affect your estate planning. It is true that taking out loans could change how you plan in several ways.

What Happens to a Student Loan When the Borrower Dies?

Student loans don’t really disappear when the borrowers die. (The same is true when borrowers declare bankruptcy.) Unfortunately, the loan issuers can attempt to collect from the borrowers’ estates after their deaths.

During the probate court process of distributing an estate, the executor has to give creditors notice of the deceased person’s death and the probate action. The creditors then have a short time period to make claims against the estate. If they make valid claims, the executor must pay back the debts owed to the creditors with money from the deceased person’s assets. Any money that is left over goes to the heirs. But if the debts are large (as student loans often are) or the assets are small, there might not be anything left over for the heirs.

What If Someone Co-Signed on the Student Loan?

If someone co-signed on a student loan along with the student borrower, the situation is even worse after the borrower dies. Some student loans contain clauses requiring full repayment upon the student borrower’s death. This means that the co-signer is suddenly on the hook for thousands of dollars, all at once. Alternatively, the co-signer may need to keep making payments in the borrower’s place, often for many years. The co-signer usually has no option to discharge the loan when the borrower dies.

Can Borrowers Still Leave Assets to Their Heirs?

Despite the requirements of the probate process and the issues for co-signers discussed above, student loan borrowers do have the opportunity to estate plan in a meaningful way. A few options that leave money to family without the risk of creditor claims in probate include:

  • Placing assets in an irrevocable or living trust
  • Taking out life insurance or opening a retirement account
  • Making lifetime gifts

All of these methods remove the borrower’s ownership of the funds or make distribution to another person upon the borrower’s death mandatory. As a result, student loan companies most likely will not be able to access the assets to repay the loans.

In debt and want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

Credit Card Debt and Estate Planning in Illinois

If you have significant credit card debt, you may wonder if the debt will affect your estate planning or if it will cause problems for your heirs. Not accounting for money you owe on credit cards could have surprising consequences. As a result, your estate plan may need to factor in your credit card debt and try to minimize its impact on inheritances.

Will Credit Card Debt Stick Around After Death?

Your debts unfortunately do not simply disappear after you pass away. Credit card companies still want to collect their money, whether it is from you or from your estate. In Illinois, the probate process for distributing estates allows creditors to make claims against an estate. They must receive notice of the debtor’s death from the executor, and then they have a limited time period to assert their claims to the court.

In addition, creditors can seek repayment from co-account holders. Surviving co-account holders still have the obligation to make payments on the credit card debt after one account holder passes away.

Will Credit Card Debt Reduce Inheritances for Your Heirs?

Provided that an estate has enough money, the executor will have to pay off the creditors before distributing inheritances to heirs listed in the will. Any creditor who made a valid claim will receive a payment from the estate. The heirs would receive whatever is left over in the estate. If the total estate assets are not large enough to pay all the debts, then the executor will make partial payments to creditors. However, the heirs would receive nothing.

How Can Estate Planning Help with Credit Card Debt?

If you have substantial credit card debt, you may want to take advantage of estate planning structures that protect assets from creditors. For example, properly drafted irrevocable trusts remove assets from your probate estate. As a result, the executor cannot use the assets to pay back creditors, and the creditors cannot levy them.

Further, you can make lifetime gifts to your chosen heirs instead of gifting in your will. Doing so gets the money directly to the heirs without the requirement of probate. Other estate planning structures and techniques can achieve similar results. If you have credit card debt and are concerned about its effect on your family and heirs, consider how an estate plan can help.

In debt and want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

The owner of this website has made a commitment to accessibility and inclusion, please report any problems that you encounter using the contact form on this website. This site uses the WP ADA Compliance Check plugin to enhance accessibility.