Not everyone can pay off all their debts before they die. It is possible that your creditors may come after your estate after your death to satisfy your outstanding debts. Since your estate executor has to settle matters with your creditors before your children can inherit, there is a chance your children may lose some of their inheritance.
Fortunately, you can explore some options that may shield some of your assets from creditors and allow your children to inherit without a problem.
Use beneficiary forms
You may have pensions and accounts like a 401(k) or a life insurance policy that you want to pay out to your children after you die. If so, Kiplinger suggests that you make sure that you name your children as beneficiaries on your accounts. Filling out your beneficiary forms allows your children to directly receive payouts without going through probate.
Usually, unsecured creditors have no chance to claim money from these accounts. However, if you do not fill out beneficiary forms, your accounts will probably payout to your estate instead. As a part of your estate, your money would become subject to claims from your creditors.
Create a trust
Another way to shield assets from collection efforts is to create a trust for your children. You can fund a trust with the money you want your children to receive and draft terms for them to receive it. You may give your children their inheritance all at once or if they meet certain conditions like using the money to finance a home or a college education.
If you form an irrevocable trust, the law will not consider the money to be yours any longer. Instead, the money will belong to the trust. This will make it hard if not impossible for creditors to claim the money to pay your debts. However, creditors may try to undo your asset transfers to your trust on the grounds you only set up a trust to defraud them. So consider making a trust as early as possible if you wish to create one.