by urroyalfreshness » Tue Dec 14, 2010 08:27 am
Will the beneficiary(me) of my Mom's life insurance policy in FLORIDA have to forfeit the death benefit paid to the beneficiary(me) because I have a couple judgements against me, student loans, ans child support.
Posted: Tue Dec 14, 2010 09:39 am Post Subject:
NO! No one can interfere with the transfer of the money from the insurance company to the beneficiary. This is governed under the legal concept of "spendthrift" (or "spendthrift trust"). This includes persons with judgments against the beneficiary or the deceased insured.
As long as the money resides with the insurance company it is "safe" from the claims of creditors. However, once the money is in the "possession and control" of the beneficiary, it may be attacked by anyone with a claim against the beneficiary.
One method of possible avoidance from the attacks of one's creditors is to receive the money as a series of payments instead of a lump sum. This will create a small tax liability for the interest that the death benefit proceeds generate from year to year, but the amount of money paid monthly might be quickly spent on rent, utilities, etc, leaving nothing for the creditors to attack.
Such "settlement options" include a fixed period or fixed payment option, or one of several lifetime income options.
If the insured has not yet died, the owner/beneficiary could be changed to an Irrevocable Life Insurance Trust (ILIT), with the beneficiary of the Trust any other person named to receive the proceeds. This would allow all the money to pass from the insurance company to the Trust, escaping any claims of creditors and payable to the named beneficiary of the Trust. If the Trust makes payments for rent/mortgage, utilities, other expenses directly without passing into the hands of the beneficiary, there will still be nothing in the hands of the ultimate beneficiary for creditors to attack. Under this scenario, it would not be a great idea for the beneficiary of the Trust to also be the Trustee, but nothing legally prevents the existing policyowner from doing this when creating the Trust document itself.
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