When adult heirs are encumbered by previous personal debt, assets of an estate may not be protected against garnishment. During estate administration, there are some tools you can use to shield inheritance from certain entities, such as some types of trusts, but attempting to hide the money is probably not a good idea. A man who inherited $11 million has learned this lesson in a bizarre series of events that includes shell corporations and offshore bank accounts.
The man's actions eventually caused him to be held in contempt of court and led to him invoking an "Impossibility Defense" that didn't hold water in court. The man's troubles began before 2007 when he signed the guarantee on a commercial mortgage. In 2007, Fannie Mae entered judgments him because the mortgage was not paid. More judgments were entered in 2008.
The man's father died in 2010 and Fannie Mae moved to restrain him from accessing his inheritance. The injunction on the funds fell through due to a technicality. It was invalidated because the man didn't have possession of the money at the time. He used that technicality to access the funds and move the millions to a Swiss bank.
After more litigation, the court ordered the man to hand over $7 million. He dutifully wrote to the Swiss bank, asking for a transfer. The bank replied that a transfer was impossible since the money was no longer available. An investigation showed that the funds had been transferred to a newly-formed offshore company. The funds could not be retrieved from the company. A spokesman said the money was tied up in investments.
The man who inherited the funds told the court that he was unaware that his money was being managed in such a way. He also attempted several defenses, including stating that it was impossible for him to satisfy his debt to Fannie Mae since he has never had possession of his funds. From reports, it would appear the court is not buying that argument. In this case, it might have been better for the man to satisfy his debts during probate through proper legal channels.
Source: Forbes, "Grossman And The Impossibly Difficult Impossibility Defense" Jay Adkisson, Dec. 08, 2013