August 14, 2007

How inheritances are lost (part 2 of 3)

By Robert P. Bergman
Special to the Times

In Part 1 of this series, I told the story of Bill, who lost the inheritance from his parents to his creditors and his own inability to handle his personal finances, all because the inheritance was left to him outright without any restrictions. I also told the story of Ruth, who lost her inheritance paying for her 24-hour medical care after she was seriously injured, and ended up depending entirely on the government for her care.

In the final installment of this series, I will discuss how, with proper planning, a family can work together to guarantee, as much as possible, that family wealth will not be lost. In the meantime, here are a couple more stories of how inheritances are lost.

Marisa’s Story: Marisa had been happily married to Jim for ten years, and had two wonderful children. Two years ago, Marisa’s mother Jane died, leaving her home and investments totaling over $800,000. The house was sold and the investments were liquidated, converting everything into cash. When the check arrived from her mother’s lawyer for her inheritance, Marisa put the check into the joint account she held with her husband. Five years later, Marisa died, and everything they owned together, including Marisa’ inheritance, went to Jim. Jim then remarried, started a new family, and left everything to his new wife and new child, with nothing going to Marisa’s children. If only Jane had left Marisa’s inheritance in another way…

John’s Story: John had started his store with high hopes. He had sunk everything he owned into the fixtures, inventory, lease, etc... So, when he ran out of money and his business failed, all of his vendors and other creditors came after him for payment. He was forced to file for personal bankruptcy, facing the fact that he was going to lose almost everything he owned. Unfortunately, his troubles were just beginning. To add insult to injury, one month after he filed for bankruptcy, his father died, leaving him an inheritance of $500,000. Because he was in bankruptcy at the time, the court-appointed bankruptcy trustee seized his inheritance, and used it to pay John’s creditors. When the smoke cleared, John was out of bankruptcy, but there was only $50,000 of his inheritance left. The rest had gone to his creditors. Could something have been done differently by John’s father?

Continued next month.


Robert P. Bergman is a San Jose estate planning attorney and counselor who devotes his law practice exclusively to assisting individuals and couples planning for incapacity and the eventual transfer of their property to their heirs. He has regular seminars on the use of wills and trusts in estate planning. Visit his Web site at www.lawbob.com where you can learn more, register for an upcoming seminar, schedule a consultation, and read other articles on estate planning topics he has written. You can reach him by e-mail at rpb@lawbob.com or telephone at (408) 247-0444. All inquiries are confidential.

This column is intended to provide general information about estate planning ideas, concepts and laws, and is not to be relied upon as rendering legal advice about your particular situation. No attorney-client relationship is created by these articles. The laws concerning estate planning, wills, trusts, and estate taxes are very complex, often state-specific, and change on a regular basis. Consult with an experienced attorney before taking any action that would affect your personal or business matters.