Protecting your assets during and after your life is essential if you have started estate planning. However, no estate plan is complete without lawsuit protection, or your estate and beneficiaries could be at risk. Learn how to safeguard your estate from lawsuits below and speak to our Illinois estate planning attorneys at Bruning & Associates, P.C. if you have questions.
Why Protect Your Estate From Lawsuits?
Anyone can be sued at any time, but it is common for someone’s estate to face litigation after the person passes away. Financial issues, including taxes, creditors, and probate, may pose substantial risks to your estate. However, sometimes the beneficiaries of the estate contest the estate, and lawsuits result.
If beneficiaries quarrel over the estate and about who gets what, it can lead to lengthy and expensive lawsuits. Also, relatives fighting over assets inevitably makes family relationships suffer during a time of grieving, making the process even more difficult for everybody. That is why it is critical to protect your estate from lawsuits. Fortunately, there are steps you can take to safeguard your estate plan:
Be Specific In Your Estate Plan
When you and your attorney write the estate plan, it is critical to be as specific as possible. If there is any room for interpretation in your will, there could be confusion, which can lead to disagreements and lawsuits.
For example, rather than just stating that your assets will be divided evenly among the heirs, detail who gets what. Also, consider making gifts to your beneficiaries when you are still living. You can even talk to family about who is getting what before you die.
Next, be sure you know what your assets are and keep the plan updated annually to reflect life or asset changes. You also may need to update which beneficiary gets which asset. Doing these things reduces the chances there will be lawsuits regarding your estate when you pass.
Separate Assets
Do you have a business that is a sole proprietorship? This means your business and personal assets are combined. If a lawsuit involves your business, you could lose everything you own if you do not make the proper legal plans.
One solution is to put the business in someone else’s name while you are alive. This will avoid possible disputes if the business is transferred in the will. Another option is to set up a corporation, LLC, or limited partnership to separate business and personal assets.
Use An Asset Protection Trust
Having a will is critical, but you can provide more protection to your estate from lawsuits by having an asset protection trust set up. Some of your trust options are:
- Revocable living trust: Allows you to change or end the trust at any time before you die. The trust becomes irrevocable when you pass on.
- Irrevocable trust: This trust cannot be changed after it is created. An irrevocable trust is not as flexible as a revocable one, but there is more protection from lawsuits, the IRS, and creditors.
- Charitable trust: Allows the donation of money or assets to a charity. Assets that are in the charitable trust are not your property anymore. This means that they can pass to beneficiaries without worrying about lawsuit and tax issues.
Name A Professional Personal Representative
It is common for people to name a spouse or child as their personal representative. But using a professional personal representative can reduce conflict in the family and avoid lawsuits. Hiring a professional is indeed more expensive, but it is wise if it prevents your estate from being contested.
Another option is to name co-personal representatives, such as several family members. Doing so reduces the appearance of bias or favoritism that can happen if you have one family member in charge.
More Estate Planning Tips
You can save more assets for your heirs by following these additional estate planning tips:
Itemize What You Own
Many people do not realize all the valuable things they own. So first, go through your home and list everything useful, including the house itself, electronics, cars, computers, jewelry, antiques, etc.
Next, list your non-tangible assets, such as brokerage accounts, 401(k)s, IRAs, bank accounts, life insurance, real estate, long-term care policies, and other insurance policies. Put account numbers for these assets and note the location of any physical documents you have regarding the accounts.
List Debts
List your liabilities, including home loans, lines of credit, car loans, credit cards, etc. This is an effective way to keep your personal representative aware of outstanding debts, so your heirs are not surprised later.
Consider Converting Retirement Accounts To Roth Accounts
If you have traditional 401(k)s and IRAs, you could leave your beneficiaries with a big tax bill when you pass away. In addition, IRAs are known to be particularly problematic for estate planning.
Remember, income tax must be paid when distributions are made from regular retirement accounts. In the past, children could stretch the distributions over their lives to reduce the taxes owed, but today, beneficiaries other than spouses must take the money from retirement accounts within 10 years. As a result, your heirs could have to pay higher tax rates if there is a large account balance.
One way to avoid this tax issue is to convert your traditional retirement accounts to Roth accounts. The amount converted is taxed, but the withdrawals made by you or your beneficiaries are not taxed. Also, paying taxes now could be better than later because you never know when rates will rise.
Gift Money
As of 2021, the IRS allowed you to give up to $15,000 per person per year in gifts. Doing so can help to avoid estate taxes. Plus, the money is tax-free for your beneficiaries. Talk to your estate planning attorney about how making gifts to beneficiaries can reduce your tax obligations.
Contact Our Illinois Estate Planning Attorneys
One of the smartest things you can do in estate planning is to proactively avoid lawsuits. That is why hiring an experienced estate planning attorney is critical to help protect your assets. Contact our Illinois estate planning attorneys today at (815) 455-3000 for help with your estate plan. In addition, our estate planning attorneys serve the Chicagoland areas including Chicago, Schaumburg, and Crystal Lake.
