One of the Best Estate Lawyers in Phoenix, AZ
Many people go through times where their financial situation feels as if it has been set loose on a roller coaster. Sound familiar? There may be times where you are struggling and other times where your savings keeps building and building. During times of struggle, bankruptcy may be the best legal option available to get a family out of debt. But if the person filing for bankruptcy has set up trusts during their financially flush times for the benefit of their children or other beneficiaries, there is a risk those funds may become part of the bankruptcy, depending on the type of trust that has been set up. It is partially for this reason that it is important to speak with one of the best estate lawyers in Phoenix, Arizona if you are filing for bankruptcy and currently have trusts set up as part of your estate.
At Kamper Estrada, LLP, we have been helping clients with their asset protection and estate planning needs for many years would be happy to meet with you and guide you through the best possible legal options for your particular situation.
There are two categories of trusts a person can establish, revocable and irrevocable. A revocable trust, also referred to as a living trust, is one where the person establishing it maintains control of the trust. The individual is able to change or cancel the trust at any time. He or she is able to remove assets from the trust if they choose and use them however they want. Since the individual still maintains control over the trust and assets, it will typically be affected by any bankruptcy filing the individual files, regardless of who they have named as the beneficiary of the trust. As a result, you should strongly consider speaking with one of the best estate lawyers in Phoenix, AZ if you have revocable trust assets at your disposal and you are filing for bankruptcy. We can help you protect your assets as much as possible under the circumstances.
An irrevocable trust is one where the individual who sets it up does not maintain any control of the assets. The trust cannot be changed or canceled once it is established. There are rare circumstances where it may be, but this requires permission from the beneficiaries unless the language of the trust also bars the beneficiaries from making any changes. Once the assets are placed in an irrevocable trust, the individual setting it up is no longer responsible for any tax obligations associated with the assets, interest, dividends, etc., because they are no longer considered owner of the assets. The trust now owns them. Therefore, the assets in the trust cannot be included in any bankruptcy filing of the person who set it up. However, it remains advisable to speak with one of the best estate lawyers in Phoenix, AZ if you have irrevocable trust assets in your portfolio just to make sure that they are protected throughout the bankruptcy process.
In addition to irrevocable trusts, there are other types of accounts that parents can set up for the benefit of their children that cannot generally be included in any bankruptcy filing. For example, many parents take advantage of Section 529 accounts (named for the IRS rule that covers these funds) where parents can put funds into an account that will be specifically used for their child’s education. Any trusts that other people have set up for a child that the parents are named as trustees until the child is an adult also cannot generally be included in any bankruptcy the parents file. But again, if you are filing for bankruptcy and you want to make sure your trust assets are protected, it is generally a good idea to speak with one of the best trust lawyers in Phoenix, AZ, just to make sure your bases are covered. It is, after all, better to be safe than sorry.