No matter how hard we try to avoid the headlines, the fact is that the COVID crisis is resulting in both loss of life and loss of businesses. Many small business owners have closed their business, and have no plans to re-open. Unable to pay their debts, business owners are forced into bankruptcy to get a fresh start. Closing a business and declaring bankruptcy will impact heirs, particularly in the event that you die while the business is going through bankruptcy or before your update your estate plan.
In Illinois, the deceased person’s family is not responsible for their debt – but their estate is. Your beneficiaries will only receive assets of your estate that are left over after your bankruptcy case closes. The estate cannot be closed and all the assets cannot be distributed until after all the debt is paid. If you are making a will, and estates and probate lawyer can help provide ways for your beneficiaries to be taken care of after your death. If you are a beneficiary to an estate with considerable debt, a probate attorney can help you settle the estate and work with the executor to protect your inherited assets.
During bankruptcy, your assets are liquidated and sold to cover your debt. There are state and federal laws defining what assets can and can’t be garnished by your creditors during bankruptcy. In Illinois, exemptions during bankruptcy include:
• Qualified Retirement Plans
• Traditional and Roth IRAs
• Life Insurance
Creating an irrevocable trust before you declare bankruptcy allows you to transfer the ownership of your property to the trust so that it can be distributed to your beneficiaries after your death. Once you create an irrevocable trust, you no longer legally own the property contained in that trust. This means that during a bankruptcy your creditors cannot confiscate this property and stop your beneficiaries from inheriting it.
If you are declaring bankruptcy and are concerned about the rights and inheritance of your beneficiaries, an experienced probate and estates lawyer can advise you throughout the process and help you create an irrevocable trust. To talk to a probate, trust and estates attorney in Chicago or Lombard about how to make and store your will, contact the Estate & Probate Legal Group at 630-800-0112.