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Can you stop creditors from taking an inheritance?

On Behalf of | Mar 3, 2022 | Estate Planning

You know that one of your heirs struggles with their spending habits. They have a lot of debt, and they have creditors who are constantly trying to get that money back. Maybe it’s just credit card debt, maybe they have bad business loans or maybe it’s something else altogether.

In any case, you’re worried about leaving an inheritance to this child because you think the creditors are simply going to take all of the money. You want to leave them something, but your goal isn’t just to pay off all of their debts at once and leave them in a difficult financial situation with essentially no inheritance. Can you protect your money from those creditors?

Putting the money in a trust may protect it

One way to do this is to put the money into a trust. This means that your heir doesn’t actually control it. The trust owns it, and the trustee that you choose is in charge of it. You can lay out specific ways that the money should be used or you can just authorize the trustee to use their discretion.

When you do this, the creditors cannot come after your heir for the money that is held in the trust. They may still try to collect from other sources, but you know that at least your money isn’t going toward that debt. This can also be a good idea if you feel that your heir may make more financial mistakes in the future and you want to have the trustee limit how much money they’re able to withdraw at any given time.

It’s very important to set a trust up properly so that it works correctly, and you need to make sure you know exactly what steps to take.