The majority of the populace don’t worry once they die, creditors will line up to receive all their dues from the estate in case it doesn’t require probate. In most situations, the existing relatives of the deceased pay valid debts, such as monthly bills, funeral expenses, taxes, and medical bills.
However, you can’t go off the hook from legal obligations to a credit card company or any other creditors. What if you have not left a sufficient amount to clear all the debts and taxes? In that case, once you expire, creditors can claim all the assets that are not part of probate.
If there are proceedings related to the probate, the executor (the person who is responsible for handling affairs after one’s death) can ask the person who is the inheritance of the deceased to sell or give away a part of their property or whole to clear debts.
However, in most of the states, creditors have about a time limit of three to six months to file legal claims from the executor. If a creditor who knows about the proceedings of the fails to claim their share before the deadline, then the creditor cannot file a claim against the executor.
When a person’s property has not been on probation, a creditor’s claim can’t be cut off quickly. However, a creditor can claim the property from the person who has inherited the property after the actual debt owner’s death.
A Few Ways To Keep Your Home Safe From Creditors
It is not at all easy to keep your probate safe from creditors. However, we have assimilated a few ways that might keep your probate intact.
Probate – Insurance Of Liability
The best way to keep your home safe from lawsuits and creditors is to buy as much liability insurance as possible. A large policy might help you settle the amount with creditors.
Tenancy Of Entireties
When a house or property is shared both by the husband and the wife, it is considered as the tenancy of entireties. In such a situation, if one of the tenants is sued, then the other tenant can claim 100% of the property. In such a situation, the creditor justice cannot seize the house. However, there are still some limitations to the Tenancy of Entireties policy. The policy gets sued if both the husband and wife get sued. It is also not eligible if one tenant dies, leaving the debt tenant with the property. The property may also be seized if both the husband and wife die.
Suppose you have a property and you are scared of creditors and lawsuits, you can use the LLC to protect your assets. However, the sad part is that there are only a few states that support the LLC law. Wyoming is one of the famous states that support LLC law for protecting your property.
It is important for the LLCs to have a business purpose. However, when it comes to personal properties, it is not easy to come up with a business purpose with LLC. Although, if the personal asset has a well structured rental property, then it is possible to apply the LLC. The personal assets take up a lot of extra charges when you plan to involve LLC. You may lose tax benefits.
Probate and Qualified Personal Residence Trust
The Internal Revenue Code has endorsed the new qualified personal residence trust (QPRT). It helps to transfer personal property to children with minimum to no tax. However, it takes a lot of detail to incorporate the QPRT into a strategy to save your property from creditors.
It is easy to take up a QPRT. All you need to do is being the grantor, transfer the house to a qualified personal residence trust. This helps the dad to live without paying any rent for a number of years. However, the children of the grantor receive the remaining interest after the expiration of the term. The value of the children’s gift is the reduced value after the father retains a certain value of interest. Thus the children get the house at a very less value rather than that available in the market.
If the grantor gets sued, the only query is if the creditor gets the grantor’s interest and thus forces the sale of the house. If such a sale takes place, the trustee of the QRPT must pay the annuity remaining term to the grantor. This strategy can make it really difficult for the creditors to seize the property. It still does not protect the property entirely.
There are not many ways to protect the property from creditors. Yet you can try and apply LLC to own the interest and DAPTs.