Keep your children’s and your parents’ assets out of your bankruptcy!

14 Aug Keep your children’s and your parents’ assets out of your bankruptcy!

Too often, parents forget to consider their children’s assets when filing bankruptcy. For example, they may control accounts under the Uniform Transfers to Minors Acts. They may have custodian accounts. They may serve as trustee under various trusts. They may have established educational savings accounts under section 529 of the Internal Revenue Code.

No matter, it’s very important to distinguish between things you own and things you hold for the benefit of your children.

You can’t use your children to shield your own assets from bankruptcy. You certainly can’t transfer assets from your own name into your children’s name before you file a bankruptcy. This would be a fraudulent transfer and you could lose your right to a discharge in bankruptcy. Don’t do that!

But on the other hand, if you’ve been saving money for your kid’s college in a protected educational savings account, you’ll be fine. If you put money away for your children in a trust before you got into financial problems, you’ll be fine too. If you’ve been saving gifts given by the grandparents for the children in a custodian account, you’ll be fine too.

Be sure to disclose all of this information to your bankruptcy attorney. You’ll want to disclose every account you have, no matter for what purpose in your bankruptcy petition. But you’ll also want to be able to explain why the account is in your name and why the account really belongs to or is for the benefit of your children.

The same logic applies when you are holding assets for the benefit of your aging parents. What’s theirs is theirs. Be sure that you don’t muddy the waters and leave your parents’ assets vulnerable to a bankruptcy trustee in the event that you have to file a bankruptcy case.

Full disclosure to your attorney is always the right approach.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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