VanNess & VanNess, P.A.

What to do about beneficiaries with credit issues

Florida residents who are preparing estate plans should be aware of any potential creditor issues with beneficiaries. The reason for this is that a creditor may be able to seize a debtor's inheritance. This was a dilemma that recently occurred when a mother left her home to three sons, one of whom had a child support judgment.

The only higher priority for an estate other than this type of lien is taxes owed by the estate. An executor is required to do a search for child support judgments before distributing inheritances to beneficiaries. Usually, the executor would need to pay the judgment amount. If anything is left after, the beneficiary would receive those assets.

However, in the aforementioned case, the situation is more complicated. If the beneficiary does not have the money to pay the debt, his brothers might loan him the cash for it. They could then take repayment in the form of a larger share of the home. Otherwise, the executor could force the sale of the home. The proceeds from the portion belonging to the brother with the judgment against him would then go to the judgment and any remaining amount would go to the brother. The other two brothers would get their full share. A trust might have protected the home from creditors.

Trusts have a number of other uses in estate planning. For example, even if a potential beneficiary does not have issues with creditors, they may simply be irresponsible with money. Trusts can be set up to distribute money only at certain times or at the discretion of a trustee. A trust can also be created to care for a relative with special needs. A lawyer could help an estate holder make plans regarding trusts.

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