What happens if I receive inheritance during a Trust Deed
One of the rules of a Trust Deed (TD) is that if you receive a windfall payment while you are in the agreement this must be paid in for the benefit of your creditors.
An inheritance payment is unquestionably categorised as a windfall. As such if you are written into someone’s will and they die while you are in your Trust Deed any money you receive must be paid into the agreement.
This is the case even if the actual payment happens after your Trust Deed payments have already finished. You must inform your insolvency practitioner (Trustee) and pay over the money when you receive it.
Will an inheritance payment my Trust Deed finishes early?
The fact that you have paid your inheritance money into your Trust Deed does not mean that it will be paid off any faster.
Normally you will have to continue making your Trust Deed payments as normal. The extra inheritance money will simply increase the amount that is paid back towards your debts overall.
If you receive a very large amount of inheritance which is enough to pay off all your original debt (not just the amount you agreed to pay in your Trust Deed) then you will be expected to do that. Of course once the payment has been made your Trust Deed will then come to an end. There will be no requirement for you to then continue making your monthly payments or release equity from your home if you are a home owner.
The only time when you might be able to use an inheritance payment to settle a Trust Deed early is if this payment coincides with a change in your financial circumstances meaning that you are no longer able to make your monthly payments.
In this scenario, it is conceivable that a variation of your Trust Deed could be agreed with your creditors to allow it to be settled early with no further payments required.
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Could I keep any of my inheritance payment if I really need it?
One of the most common questions about an inheritance payment received during an Trust Deed is whether you will be able to keep any of the money to help pay for urgent expenditures.
The rules say that all of the inheritance money you receive has to be paid into your Trust Deed. However your Trustee does have the discretion to allow you to keep some of the money if they feel you have a reasonable requirement.
As such if you really need some cash to repair your car or perhaps your boiler at home, it is possible that your Trustee will allow you to retain the necessary cash to pay for this. However this is by no means certain and will depend on the individual circumstances surrounding your situation.
It is absolutely critical that you do not spend of the inheritance money you have received without first getting agreement for this with your Trustee in writing. Spending any of the money without your Trustee’s agreement could lead to the failure of your Trust Deed.
Should I delay my Trust Deed until after I have received my inheritance payment?
If you receive an inheritance payment before you start a Trust Deed it is yours to keep and you can do what you want with the money. As such you can use some of it to pay for pressing expenditures if you wish.
The only thing you must not do is pay off any of your creditors (especially friends and family) and then try to start a Trust Deed. This would be considered a preferential payment and could cause issues getting the agreement of the remaining creditors to your Trust Deed proposal.
If you feel that you might inherit some money in the next three years but are not exactly sure if or when this will happen, delaying the start of a solution to resolve your debt problems might not be an option.
As such you might want to use a debt management plan to manage your debts on a temporary basis while you wait for the inheritance payment.
Alternatively it might in some specific cases be better to consider the option of Sequestration because it is likely that you will only be sequestrated for 1 year. After you are discharged any inheritance you then receive will be yours to keep. As such you will only be at risk of losing your inheritance for 12 months compared to starting a Trust Deed where you will be subject to the Trust Deed rules for the next three years.
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