Bankruptcy is the legal process by which you are declared as not being able to meet your debts.
Once you are declared bankrupt a Trustee is appointed to manage and control your assets. Essentially the appointed Trustee is given the power to sell your assets as well as use any funds in your bank account(s) that are in excess of the threshold, to pay back money owed by you. Any assets that are sold or used by the Trustee makes up what is known as a bankrupt estate.
So what happens if you receive an inheritance prior to becoming bankrupt?
Much like any other funds in your bank at the time you declare or are declared bankrupt or any other asset of value, an inheritance will be used to pay back any debts you owe.
Essentially the same thing will happen if you receive an inheritance during the period of which you are bankrupt. Money or property received can be sold or used by the Trustee to pay off your debts.
So is there any way to protect an inheritance from being used to pay back your debts?
This question is difficult to answer.
You cannot simply write in a Will that you do not want the inheritance to go to the trustee of the bankrupt estate. Nor can you secretly give the bankrupt person their inheritance another way. It will be considered that you have defrauded the bankrupt estate and a claim can be made by the trustee to recover this inheritance.
However, with careful estate planning there are ways to protect an inheritance from being claimed by the bankrupt estate. A person can establish what is known as a discretionary testamentary trust. When assets are left to a trust, a trustee is appointed, which gives them the power to deal with property and assets. As the power lies with the trustee of the testamentary trust to deal with bequeathed assets, they are protected against a claim by a trustee of the bankrupt estate.
There can be many implications of creating a testamentary trust and it is not as simple as it may sound. You should seek legal advice as to the suitability of such a trust.
If you are considering bankruptcy or are concerned about a beneficiary becoming bankrupt, our experienced Solicitors can advise you because Helping You is Our Business.

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