Inheritance Question

[whirlwind123]

My mom put this question to me., she said what if her and my dad were in an accident and both died., while I am in Chapter 13 what would happen to all her money she has left me with insurance policies etc., ? Would the Trustee take all my inheritance?

[HHM]

In 13 you have two choices, but the result is (should be) the same. But to answer your question, the trustee IS entitled to those funds.

1. You may dismiss the case.
2. Pay off the plan.

Either way, you would probably end up paying the debt off anyway with any inheritance, thus, it usually makes more sense to pay off the plan vs dismissing because if you dismiss the creditors add back interest and late payments fees from the date of filing.

However, this factor SHOULD NOT go into your decision to file a BK 13, you cannot base your financial recovery on infinite "what if" scenarios.

[NoTomatoCan]

What if the parent has a trust? When they die, the funds are in the trust and are distributed by the executor.

The funds technically don't belong to the debtor until they are distributed, and in many cases the executor has some discretion on the timing of the distributions.

For example, there is a provision in my mom's trust to only distribute minimal annual amounts (versus one lump sum) to one of my disabled sisters so as to not impact her disability eligibility.

I am in a similar position to the OP. Not that I am expecting my one remaining parent to die in the next 5 years, but it is interesting to understand.

[justbroke]

However, this factor SHOULD not go into your decision to file a BK 13, you cannot base your financial recovery on infinite "what if" scenarios.

Nicely put.

The funds technically don't belong to the debtor until they are distributed, and in many cases the executor has some discretion on the timing of the distributions.

Incorrect. They belong to the debtor as soon as he becomes entitled to them.

I would heed HHM's advice. Besides you could end up with a better deal if few unsecured creditor even file a claim!

[needanswers]

I would heed HHM's advice. Besides you could end up with a better deal if few unsecured creditor even file a claim!

I was wondering about this as our life insurance policies on each other are only enough to cover our unsecured debts and it would leave nothing to assist in paying off the mortgages.

So HHM's option #2 "pay off the plan" is whatever is claimed by the creditors?

[justbroke]

So HHM's option #2 "pay off the plan" is whatever is claimed by the creditors?

Exactly. And it's not just what was "claimed" but what was 'allowed". This is why I painstakingly objected to about half of my claims. Only half of my claims are "allowed".

[NoTomatoCan]

JB - I thought that was one of the purposes of "spendthrift provisions" in trusts - to protect assets in the trust from going to the creditors of the beneficiary (also why you can't have a self-serving trust with a spendthrift provision to hide assets).

I thought the executor could distribute the funds based on the wishes of the trust - thereby letting the executor control when the individuals are "entitled" to the funds.

This flexibility being one of the (many) reasons to have a trust versus just a will.

I am in no way an estate planning expert, and probably am missing some major concept here, just trying to understand this better.

[HHM]

There are a few issues that are getting commingled.

The OP's questions initially related to inheritance. So, with a straight inheritance, that is income for purposes of BK 13 and subject to the BK

Now you have raised the issue of "trusts" in BK. Bottom line with trusts is this; the trustee is only entitled to and can on do what the debtor could with the trust. If you are simply the beneficiary of a trust with no control, then it doesn't matter for BK.

[Flamingo]

When one goes into a Chapter 13, one usually does not run around and have their parents or relatives redo their wills and set up trusts if they are the beneficiary of all or part of any estate. The chances of two parents both dying during the course of one's Chapter 13 is probably low unless there are severe health problems for the parents at one's start of a Chapter 13 Plan (if both parents are living and one dies, it is usually the surviving spouse that inherits the estate). Most people are asked prior to filing by their attorney do you expect to come into any inheritance or other funds during the course of your chapter 13. Of course no one expects several people to die during the next 3 to 5 years so the answer is usually no and one may not know if they are listed as a beneficiary in any relative's will. My father-in-law passed away during our Chapter 13 and after all bills were paid, there was some life insurance funds left over for my husband and his brother. We had to turn over half of that inheritance to the Trustee. We did not have to turn over the entire inheritance. Those funds did not reduce our Plan or reduce our monthly payments but more funds were distributed to creditors and increased our payback percentage. The main thing is we reported the inheritance because not doing so would have put us at risk of dismissal if it was found out we did not report it.

If one feels the need to have parents or relatives redo their estate planning prior to their filing Chapter 13 (I'd love to be a fly on the wall during one of those conversations), it's best to consult first with an estate planning lawyer.