Whether you still have a mortgage, owe past-due medical bills, or have thousands of dollars in credit card debt, these debts do not simply disappear when you pass away. Your estate may be responsible for paying these final debts, and your beneficiaries do not receive their inheritance until all of your creditors’ claims are resolved. The probate court can compel your estate to liquidate your assets to repay creditors. However, there may be strategies you can adopt to protect your assets from creditors. For more information on this subject, consider contacting Kushner Legal by calling (310) 279-5166.
Creditor Rights in California
The Superior Court of California County of Los Angeles explains that creditors have the right to be notified that your estate is being probated. This applies to creditors who are known to the personal representative, as well as those who could reasonably be ascertained, including Medicaid if you were on MediCal. Under California law, creditors have 60 days from the date they were notified of the personal representative’s appointment or four months from the date Letters of Administration were issued, whichever is later, to file a claim with the court. The creditor must file Form DE-172 with the appropriate court and provide a copy to the personal representative. The personal representative allows or rejects the claim, file the allowance or rejection with the court, and sends a copy of it to the creditor. If the personal representative rejects the claim, the creditor has three months to file a lawsuit in the proper court, subject to a maximum time limit of one year from the decedent’s death.
Ways to Protect Your Assets from Creditors
There may be several ways that you can protect your assets from creditors, such as:
Creating an Living Trust
Living revocable trusts can transfer property before your death so that they are not part of your probate estate. These trusts can be readily changed or revoked. An irrevocable trust provides greater asset protection because it cannot easily be revoked or changed. When the owner of the assets transfers them to an irrevocable trust, they are no longer the legal owner of the assets and cannot dictate how the assets are distributed. By using an irrevocable trust, you may be able to transfer life insurance proceeds to your beneficiaries while protecting them from creditors.
Using Beneficiary Designations
An affordable and relatively simple way to protect assets from creditors is to use beneficiary designations. These designations allow you to transfer assets directly to the beneficiary you name. These assets transfer at the time of your death so they do not become part of your probate estate and subject to creditor claims.
This can help you transfer assets such as:
- IRAs
- 401(k) plans
- Retirement plans
- Pensions
- Brokerage accounts
- Life insurance proceeds
Using Payable and Transfer On Death Designation
Payable-on-death (POD) and transfer-on-death (TOD) work similarly to beneficiary designations – they allow you to pass certain property immediately at the time of your death, thereby avoiding the probate process. These designations can allow you to transfer assets such as:
- Checking accounts
- Savings accounts
- Mutual fund accounts
- Stocks
- Bonds
Owning Property as Joint Tenants
If you own property jointly with your spouse or other person with the “right of survivorship,” this property automatically passes to the other owner at the time of your death. It does not become part of the probate estate. Likewise, if you own community property with your spouse in California, this property passes to your spouse automatically at the time of your death.
How an Estate Planning Lawyer in California Can Help
There are several strategies that could potentially help you plan ahead for your debts in your trust, will, and/or estate plan.
- Explain the rules pertaining to your creditors
- Provide information about various options that may help you protect your assets from creditors, such as establishing certain types of asset protection trusts or using an LLC to protect your assets
- Discussing ways to mitigate debt and which debt is cancelled at the time of your passing
- Consult with you on probate avoidance techniques
- Transfer ownership of assets to trusts
- Establish backup beneficiaries if the original beneficiaries predecease you
- Consult with you on Medicaid planning options so that you can quickly qualify for Medicaid without penalty if you wind up needing benefits
An estate planning lawyer from Kushner Legal can help create a plan that is customized to your individual needs.
Contact a Knowledgeable California Estate Planning and Asset Protection Lawyer for Help
If you would like to explore your options regarding creditors and your estate plan, consider contacting Kushner Legal. You can consult with an experienced California trust and estates lawyer during a confidential consultation you can arrange by calling (310) 279-5166.