Life insurance

[reagantrooper]

Hello Soc
Hope all is well with you and yours!

I have a question about weather the benifecery on a life insurance policy should be the estate or a person . Currently its the estate and there is a will that dictates where the money should go. IE: the Kids, Wife , Dog etc.

1. If the Wife was made the benifecery would this protect the life insurance money from any crediters I may have or could the crediters still come after that money?

State is NH.

Thanks

[socrateaser]

>Hello Soc
>Hope all is well with you and yours!
>
>I have a question about weather the benifecery on a life
>insurance policy should be the estate or a person . Currently
>its the estate and there is a will that dictates where the
>money should go. IE: the Kids, Wife , Dog etc.
>
>1. If the Wife was made the benifecery would this protect the
>life insurance money from any crediters I may have or could
>the crediters still come after that money?

An insurance company is immune from creditor attack in the payment of insurance proceeds to a beneficiary. However, once the beneficiary is paid, his/her right to the insurance proceeds may be challenged by a creditor.

The general rule is that a beneficiary designation is revocable by a creditor to the extent that it was revocable by the decedent during his/her lifetime. So, if you create a life insurance policy with a revocable beneficiary designation, then a creditor could challenge the beneficiary's right to the proceeds after your death.

Where your minor children are concerned, the court will usually award support, even from an irrevocable trust, at least to the extent that the trust throws off income, but not from an irrevocable life insurance policy, unless there is evidence that money diverted during the decedent's lifetime was diverted from child support to pay for the insurance premiums.

The only certain way to protect your assets, is to have an offshore trust (Swiss, or other foreign jurisdiction that will not honor a U.S. Court order, or discovery request). Most persons do not have sufficient assets to justify this approach. If you do, then you can afford to discuss this option with an attorney who is expert in such matters.

[reagantrooper]

Thank you!

[DecentDad]

I currently have a policy that has my wife as 100% beneficiary.  It's my understanding that this is outside my estate, as it's a contractual payment to my beneficiary made upon my death.

That said, my wife and I are intending to create a trust (that benefits my daughter and the second child I recently had with wife), as the contingent beneficiary for each of our policies (in the event that wife and I perish together).

1.  Are you saying that if my wife remains 100% beneficiary (and I assign another person as the contingent beneficiary), my ex has no legal recourse; but if the beneficiary turns out to be a trust for my two children (one of whom has my ex as biomom)... there may be grounds for my ex to seek on-going support from this trust regardless of how it's set up?

2.  If so, how would I set up a vehicle that protects funds (from a family law judge) intended for daughter's education and then subsequent distribution after college?  Biomom's family has had no problem supporting her lifestyle for years, and I'd rather let them continue to do so and ensure my death dollars can give daughter a good education and a healthy financial start after college.

Thanks for the clarification.

DD

[socrateaser]

>1.  Are you saying that if my wife remains 100% beneficiary
>(and I assign another person as the contingent beneficiary),
>my ex has no legal recourse; but if the beneficiary turns out
>to be a trust for my two children (one of whom has my ex as
>biomom)... there may be grounds for my ex to seek on-going
>support from this trust regardless of how it's set up?

Yes.

If your spouse is the beneficiary of the trust, and the trust principal (res) came from an insurance policy, then your ex could not reach that money or the trust, because your child is not a beneficiary of the trust proceeds which were the result of an insurance policy (this assumes that the premium payments were made from your property, after payment of child support).

But, if your spouse and your children are co-beneficiaries at your death, then the probate court will order the trust to pay child support from the trust income until the child is an adult. The amount of support will be adjusted and based on the trust's investment income, in proportion to the amount that your child was beneficiary of the trust,, so as not to invade the trust principal.

>2.  If so, how would I set up a vehicle that protects funds
>(from a family law judge) intended for daughter's education
>and then subsequent distribution after college?  Biomom's
>family has had no problem supporting her lifestyle for years,
>and I'd rather let them continue to do so and ensure my death
>dollars can give daughter a good education and a healthy
>financial start after college.

If you want to guarantee that your children will have the money, and that your spouse will not run off with it after your death, then you risk that the trust may be invaded to pay child support during the child's minority.

Unless, your trust is created in a jurisdiction outside the reach of the CA courts. Nevada has much more secure trust laws than does CA, but even if you created a trust in NV, the fact that you were living in CA when it was created and the insurance premiums were paid from money earned while in CA, etc., would almost certainly be viewed as an artifice to avoid the exact scenario that you are, in fact, trying to avoid: payment of child support from your estate in the event of your death.

You can't have it both ways -- at least not within the jurisdiction of the 50 states.

[DecentDad]

.

[DecentDad]

OK, so long as my wife remains my 100% beneficiary on the life insurance policy, it means we're on good terms and I'd trust her to do her best to take care of my child (wife's stepdaughter) as the biomom and/or court would allow per what wife and I hope to accomplish.

Then there are "contingent" beneficiaries also provided on the policy, in the event that the primary beneficiary is dead (e.g., wife and I perish together).

So, I'm thinking that if we set up my contingent beneficiaries in a way similar to this, we'd accomplish our goal:

80% to benefit a trust for our son (i.e., my wife is biomom), with majority of disbursements to go to his appointed guardian to help raise him.

20% to benefit a family member (e.g., my sister is daughter's favorite aunt) with verbal agreement (nothing written) to invest and then help my daughter as she approaches college and thereafter.

---------------------------

Note: my ex and I never married.  This policy was never co-owned by my ex.  Ex doesn't know about my life insurance policy.  There are no court orders that I maintain life insurance.

Further, based upon biomom's on-going financial crises year after year, I believe that any distributions made to biomom will not help long-term support of daughter.

---------------------------

If I trust my wife to follow our plan (in the event that I die), and if I trust my sister (in the event that my wife and I both die together), do you believe that would completely protect any policy benefits from my ex?

DD

[socrateaser]

Unnecessary in my opinion, unless your insurance policy is huge.

I'd just set up the trust with the children as beneficiaries, and your spouse as trustee, and then let the biomom fight for support, which wouldn't last forever, and the court would only allow the trust to pay investment income towards support and not principal.

So, if you're insurance policy is for $250K, and that produces 13.75K per year income invested in AAA bonds at 5.5%, and your daughter is a 20% beneficiary, then the most that the court could possibly order would be $2,750 per year in child support, because any more than that would interfere with your son's interest in the trust.

That amount is not worth fighting for. Probate lawyers are expensive.

[DecentDad]

Ahhhh, I didn't previously get that the court only has discretion with growth on the trust, not the principal.

So even with a $1 million policy with 20% designated to benefit daughter, income on that is nominal compared to the eventual distributions paid from the principal per what I'd outline.

Thanks for clarifying.

[socrateaser]

>Ahhhh, I didn't previously get that the court only has
>discretion with growth on the trust, not the principal.
>
>So even with a $1 million policy with 20% designated to
>benefit daughter, income on that is nominal compared to the
>eventual distributions paid from the principal per what I'd
>outline.
>
>Thanks for clarifying.

The court has discretion, but BM would need to prove that the child would suffer irreparable harm (like if the child was dying) before the court would do something with the 20% of the daughter's principal.