Protecting an inheritance from creditors. Can a will contain a condition whereby the beneficiary..

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gearoidc

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Can a will contain a condition whereby the proposed beneficiary will only receive an inheritance if he/she is debt-free? (otherwise the inheritance would pass to other family members)
I am thinking particularly of beneficiaries who might be in the middle of bankruptcy proceedings and whose inheritance would be taken by the OA for distribution among creditors.
Naturally the testator would want to avoid such an eventuality but is it possible?
How might the clause it be worded if so?
Thanks in advance.
 
A number of years ago my mother had a clause in her will to say that my sister who was going through a divorce be excluded should she have died before the divorce. Not sure how it was worded but the intention was to make sure that her husband would not benefit if a sudden death happened and he got my sisters inheritance
 
It is established case law the Official Assignee can successfully challenge a bankrupt who renounces an inheritance. The safest way to protect an inheritance is for the will to put it into a discretionary trust, with a trustee appointed who can satisfy themselves that the beneficiary would not lose the inheritance.

Another way to protect the inheritance is for the beneficiary to go bankrupt now, get discharged in 12 months, and then inherit.

Another way to protect the inheritance is for the beneficiary to do a PIA/DSA now and seek a modest "advance" on the expected inheritance in order to persuade creditors to accept the proposal.

Jim Stafford
 
Jim
Can the inheritance be disclaimed prior to bankruptcy or can this also be challenged by the official assignee ?
 
As part of the bankruptcy process a bankrupt will be specifically asked to "Give details of any assets that you have sold, given away or transferred in the five years before the presentation of your bankruptcy petition." Disclaiming an asset is equivalent to giving away an asset, so any disclaimers in the prior 5 year period will be investigated by the OA, and, if appropriate, would be challenged by the OA. It is a serious offence if you deliberately mislead the OA.

Given the above, you might think that a bankrupt would just have to wait 5 years before adjudicating himself bankrupt to avoid any investigation. However, if the OA finds out about an earlier disclaimer, and that the purpose of the disclaimer was to put the asset beyond the reach of creditors, the OA would be expected to investigate that discalimer. There is no statute of limitations on fraud. (In bankruptcy law, one of the meanings of fraud is deliberate deception to deprive creditors of their legal right.)


Jim Stafford
 
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