Disclaiming Your NJ Inheritance to Avoid Creditors

The news that you have been named a beneficiary in someone’s will is generally considered a positive thing; although you (hopefully) aren’t looking forward to the passing of your loved one, it usually feels good to know that they cared enough to bequeath part of their estate to you. There are times, however, when you may not wish to receive your New Jersey inheritance. Do you have the ability to say “thanks but no thanks?”

In New Jersey, estate law says that you can refuse to accept a gift, which in this case is your inheritance. This right to refusal is known as a disclaimer.

While it may seem strange that someone would choose to turn away inheritance money or life insurance proceeds, there are a few reasons for doing so. One of these reasons is avoiding creditors.

Do you have a lot of debt? Are creditors constantly calling? If so, you may worry that all of your inheritance money will go directly to paying off your debts. This is a very valid worry, because that is precisely what would happen if you accepted any kind of windfall while swimming in debt.

If you are attempting to disclaim your inheritance so that your creditors don’t have access to it, you may be hoping to divert that money to your children or other beneficiaries. Unfortunately, in New Jersey, it is illegal to use a disclaimer to get out of paying your creditors. If you choose to disclaim your inheritance under these circumstances, it is highly likely that your creditors will still be able to access the funds due to the Uniform Fraudulent Transfer Act.

Discussing your situation ahead of time with your loved one will give them a chance to protect the money that you are hoping to avoid giving directly over to your creditors. One way to do this is to set up a protective trust or to simply leave you out of the will altogether and instead name your children or other family members as beneficiaries. Your creditors have zero claims to any money that is inherited directly by your children.

Going to these lengths to avoid paying your creditors signals that you are significantly deep in debt. While we understand the desire to keep from handing a large windfall directly to creditors, we also must note that there are steps you should take to get out of debt, and the sooner, the better.

Your options for debt relief in New Jersey depend a lot on the specific details of your situation.

  • How much debt are you carrying in comparison to your income?
  • Are you living beyond your means?
  • What is your credit score?
  • Do you own a home that you wish to keep?
  • How many different kinds of debt are you carrying?

NJ debt negotiation and relief is available to you. Beyond refusing windfalls, disclaiming your inheritance and any other steps you’re taking to avoid paying your creditors, imagine if you didn’t have to worry about those creditors at all anymore. Ridding yourself of a large chunk (or potentially all) of your debt is very possible; your financial future can look anyway you want it to as long as you take the right steps, now.

 

 

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For SSI Recipients, Does Inheritance Spell Disaster?

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What is SSI?

SSI stands for Supplemental Security Income, and it is a financial assistance program offered by the US government to low-income United States citizens who are blind, over the age of 65, or otherwise disabled. SSI benefits are available to children who are blind or disabled, as well.

SSI is not to be confused with SSDI (Social Security Disability Insurance), which is available to people who have been working for a significant number of years and have paid “their dues,” so to speak, in the form of Social Security taxes that are deducted from an employee’s paycheck. SSDI can be received by anyone who becomes disabled and is no longer able to work, regardless of their current assets. In comparison, SSI funds are provided by the US Treasury, and recipients must have limited incomes and assets along with specific disabilities.

Can an inheritance affect Supplemental Security Income?

If a family member or loved one bequeaths money to you when they pass away, it’s important to know the possible ramifications so that your financial stability remains intact. Receiving an inheritance does not affect SSDI, as it is based on your earnings as an employee in this country. SSI, however, is distributed on a needs-based system, and because of this, anyone who receives an inheritance can become ineligible for SSI benefits.

Those receiving SSI must be intimately familiar with the strict rules that surround Supplemental Security Income so they don’t risk losing their benefits, which not only provides them with much needed financial assistance, but may also provide them with health care coverage through Medicaid.

Although an inheritance is usually viewed as a positive financial windfall, if it causes you to lose your only steady income and health care coverage, it can definitely spell disaster.

Should all SSI recipients refuse an inheritance in order to avoid losing their benefits?

It would seem unfair to exclude SSI recipients from accepting any inheritance money. After all, people who receive Supplemental Security Income are by definition financially distressed and living with a disability.

In order to help SSI beneficiaries from losing their benefits in order to accept the financial windfall of an inheritance, a Special Needs Trust can be established.

What is a Special Needs Trust?

A Special Needs Trust allows a person with disabilities or special needs to accept their rightful inheritance without jeopardizing their government benefits. Typically, parents or caregivers of a disabled person will create a Special Needs Trust when they are establishing their estate plan (will), although one can also be set up after a person dies.

Instead of inheriting their portion of their parent’s money directly, a person with a Special Needs Trust in place will have a trustee to manage the trust for them. In this way, no (or limited) SSI benefits will be lost due to accepting the money that was left to them.

Special Needs Trusts are complex and have many intricate timing details that must be followed to the letter for them to work as they were intended. Also, each family’s financial situation will determine the type of Special Needs Trust that will best meet their needs.

In order to ensure that your special needs loved one receives their rightful portion of their inheritance, you must work closely with an estate planning attorney who is familiar with all of the details surrounding Special Needs Trusts.

 

Image credit: Chris Dlugosz

How is a Spendthrift Trust Affected by Bankruptcy in NJ?

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If someone close to you has passed away and made you the beneficiary of a spendthrift trust, you may be wondering exactly what this means. First and foremost: your loved one cared enough to think about and plan for your financial future after they were gone.

A spendthrift trust is typically left to a beneficiary who is dealing with one or more of the following:

  • Past or present financial difficulties
  • Addiction(s) that may lead to irresponsible spending
  • Significant debt(s) that may entitle creditors to the beneficiary’s assets

Spendthrift trusts are set up with a trustee in place. The trustee is in charge of distributing funds from the spendthrift trust to the beneficiary on a set schedule. This type of spendthrift trust acts as a form of income for the beneficiary, and prevents them from wasteful spending behaviors that may occur if they were to be granted the full amount in one lump sum.

Sometimes spendthrift trusts are set up so that the trustee does not distribute any money to the beneficiary. Instead the trustee will be directed to provide the beneficiary with goods and services that are paid for by the spendthrift trust. This type of situation is called for when the beneficiary is extremely irresponsible with money. The trustee typically uses the trust money to purchase groceries, clothing, and other monthly living expenses encountered by the beneficiary.

I want to file for bankruptcy. Will my creditors take my spendthrift trust money?

As we’ve talked about before, New Jersey bankruptcy law states that if a debtor files for bankruptcy in NJ, they are subject to a 180 day “look back” period with regard to inheritance money, life insurance funds and a number of legal settlements.

The 180 day look back period was instated to reduce abuse of the bankruptcy system. Essentially, if a loved one dies within 180 days of when you filed for bankruptcy, your creditors are technically allowed to take any financial windfall you may experience as payment on your defaulted debts.

A spendthrift trust does not allow even the beneficiary to have direct access to the funds, let alone the beneficiary’s creditors. Only the trustee has access to the money while it is in the spendthrift trust. However, once the trustee disperses any of the funds to the beneficiary, those funds become subject to creditors’ claims if the bankruptcy has been filed within the 180 day look back period.

Language can be inserted into anyone’s estate plan to prevent creditors from getting any of the spendthrift money. This will, of course, require you to engage in a difficult and uncomfortable conversation with the person whose will in which you are named as a beneficiary.

The language used must specifically state that if you (the beneficiary) file for bankruptcy during the 180 day look back period, that you are not entitled to any money in the spendthrift trust until 181 days after the date of death.

If you or a loved one need help setting up a spendthrift clause in your estate planning paperwork, seek assistance from a New Jersey estate planning attorney to ensure that the correct language is used. Estate planning is a significant life event that must be taken seriously as it can have a powerful effect on the lives of the beneficiaries.

 

Image credit: Terry Johnston

What to do After the Death of a Loved One

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Although you’ve grown into a fully-functioning, educated, well-adjusted adult, it’s never easy to lose someone you love. The passing of those closest to you – especially close family members like your parents – can quite literally be devastating.

Along with the heavy emotional toll that the death of a loved one takes on you, there may be other pressures on you during this time that extend beyond grieving. This is true especially if you are named estate executor or executrix. You will be expected to make a number of important decisions regarding the deceased’s finances in the weeks and months immediately following their death.

Because bereavement can be very emotionally taxing, consider hiring an attorney to help you make decisions regarding the terms of the Estate Plan (including the Last Will and Testament). Even simply consulting with an estate planning attorney can ensure that you fully understand your responsibilities as administrator of the estate.

If you are having difficulty dealing with your emotions, an estate planning attorney can relieve some of the pressure you are feeling. We all make less-than-optimal decisions when our emotions aren’t stable. An attorney can steer you in the right direction and can even help you handle all of your duties surrounding the will. This will keep you from making mistakes that can lead to you being fined later on. You have a significant responsibility as executor/executrix of the will, and asking for help is a wise choice.

Immediately after your loved one passes away, your duties will range from preparing the funeral arrangements to notifying government and financial institutions of the death and managing all of the financial details associated with the deceased’s estate. The main agencies/companies you’ll need to inform are listed here. The reasons for contacting each of them are different – some are self-explanatory and others are explained:

  • The deceased person’s employer (if applicable)
  • County or state vital records office – Request at least 25 copies of the death certificate so that you will have enough certified copies for all involved parties.
  • SSA (Social Security Administration) – Notifying them of the death will eliminate the possibility of scammers collecting the deceased’s SS benefits or using their SS number in a variety of identity theft acts. Remember to ask the SSA about the one-time death benefit (currently $255) and any survivor benefits that you may qualify for.
  • Utility companies
  • Credit card companies
  • The deceased’s bank – You’ll need to close any open accounts and cancel any automatic payments that come into or out of those accounts.
  • Insurance companies
  • The Post Office
  • The deceased person’s creditors (if they had any)
  • Three main credit bureaus – Equifax, Experian and TransUnion
  • Funeral home
  • Newspaper (for obituary)
  • The IRS – They will give you a tax identification number for the deceased’s estate. This will enable you to open a bank account for the estate. Use only this account to pay for all expenses surrounding the death of your loved one.
  • Subscription or membership services – Cancel any subscriptions and memberships your loved one may have held at the time of their passing. Failure to cancel recurring charges will deplete the estate’s funds.

Your attorney and (if you choose to hire one) accountant will save you a lot of headaches as you handle the business end of someone close to you dying. An accountant will be able to deal with any taxes that need to be paid – something you might not have otherwise thought about.

Even though some people hesitate to hire an accountant or an attorney when they lose a loved one, their fees will give you a great return on investment. You’ll avoid making costly mistakes, and the burden won’t rest solely on your shoulders. After your duties as executor are satisfied, work with your attorney to set up your own estate plan. In doing so, you’ll be setting out a plan that will make things easier on your heirs after you pass away.

Image credit: Paul Bica

My Brother is Bankrupt: Can his Creditors Seize our Family Trust?

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Unfortunately, many families go to battle over inheritance money every day, which only underlines the importance of having a solid Estate Plan in place. Your Estate Plan can help your surviving family members remain united instead of divided and can eliminate a lot of stress for all who are involved in dividing up your assets.

What happens, though, when one sibling (or beneficiary) declares personal bankruptcy (Chapter 7) if there is a family trust involved? Can this sibling’s creditors seize part (or all) of the funds and property that is named in the family trust?

One of the main reasons trusts are set up are specifically to avoid the creditors or a bankruptcy of a child or beneficiary. However, the trust in question must have been set up correctly, utilizing the correct language in order for it to be completely safe if a bankruptcy occurs.

A spendthrift trust, under New Jersey law, is often set up specifically so that bankruptcy trustees cannot access any of the trust’s funds or assets. A spendthrift trust is a type of trust that is established to help keep the trust’s money safe from a beneficiary with either a lot of creditors or a spending problem. This type of trust is typically initiated by someone who wishes to include someone in their will, but also wants to ensure that the beneficiary in question won’t spend it all at once or have it all taken by creditors due to a bankruptcy.

Rather than giving this beneficiary direct access to the trust funds, a spendthrift trust prevents him from spending all of the money or promising it to someone else (in this case his creditors). In order for the sibling in question to receive any monies from the trust, he will typically be paid in installment payments or in the form of goods and services that are property of the trust.

Reasons for setting up a spendthrift trust are usually one (or more) of the following:

  • A beneficiary who has a history of making poor financial choices;
  • A beneficiary who suffers from an addiction of any kind, as addictions require high amounts of money to maintain.
  • A beneficiary who is easily tricked or may have mental problems that prohibit him from making sound money decisions;
  • A fear that the beneficiary in question may file for bankruptcy (if  he hasn’t already) at some point in the near future

Naturally, you’ll want to confer with an experienced bankruptcy attorney who also does estate planning work in order to decide if a spendthrift trust is the right decision for your family.

The only way creditors would have access to any portion of a family’s trust funds would be if the grantor (likely one of the parents in the scenario set out here) passes away less than 180 days after one of the siblings (beneficiaries) files for bankruptcy. In this case, only that sibling’s funds would be touched, and he would lose half of his interest in the trust in order to help repay his priority and unsecured debts. The rest of the trust funds would not be affected.

 

Image credit: Renee