lookback for giving family money

[miindebt]

Here's the thing I'm worried about - we're filing shortly, and last March, my mom cashed in a life insurance policy that had cash value. I was the beneficiary, but she wanted some of the money out of it (she had paid everything into it - I didn't even know about its existence until she brought it up). So, I kept some and gave her back what she wanted (a few thousand dollars). Is this going to be a problem (I don't know why this didn't occur to me until now that it might be!), or is it outside of the lookback time? This is freaking me out that the trustee will go after her for the money I gave her (that was rightfully hers) - she can't pay it and I'll have to pay it back somehow.

I hope someone has some insight into this - thanks!

in MI, btw, if that has any significance

[AngelinaCat]

I don't think you have a problem. The life insurance policy was your Mother's--not yours. You were only the benificiary. It was HER policy to do with what she wished to, and if she wanted to cash it in and give you a little of the money, then she was free to do so. She didn't have to give you any of it. You wouldn't be getting any of it until, God forbid, she passed on to the next life, so the policy--and the money was never yours.

That said, you will still have to declare her gift to you in your paperwork, but as I said earlier, the policy was never yours.

The only questions you are asked at your 341, of this sort, is: (1) "do you have a life insurance policy?" That is because if YOU own it and it has cash value, the trustee can require you to cash it in so that the money can go to your creditors. The other question is: (2) "are you apt to come into an inheritance within the next 180 days (6 months)?" None of us can predict the future. Hopefully your Mom is very healthy with many more years to live.

I hope this helps to ease your mind.

[AngelinaCatHub]

Well, not because I have "some sort" of association with AngelinaCat, but she is right on. All that you did get was a gift of the residual that Mom did not take in the cash out. A one time gift is hardly income. Depending on the amount you may or might not even have to list it. If it were below 600 forget it. If not list it and if you used it for exempt stuff like food, bills, rent, clothes, fret not. 'Hub

[miindebt]

I'm not worried about it from an income perspective - I'm worried about it more as a preferential payment. The money came into my bank account in March of last year (which shows on our 2009 taxes) and then I immediately wrote a check to her which cleared in March. I don't know why I didn't think of this - at first I was worried about the income aspect and it didn't even occur to me that giving her part of the money back (and it was a few thousand dollars) so long ago would be a problem. Our paperwork is all completed and I think our lawyer is filing today...so I guess I should call him and see what to do here. If it's already filed, can things be amended later in case this becomes an issue (to exempt some of the payment)? We are actually really close to the top of our wildcard exemption, but the money we showed in our bank accounts on our schedules is actually overstated (just didn't know what would come through the checking accounts by filing date), so we could lower this by a fair amount and exempt most of this payment.

[SMinGA]

If it is deemed an insider/preferential payment - I don't think you can exempt it because its no longer in your possession. Its no longer yours to exempt.

With the time period (13 months ago) and source (your mother's insurance policy cashed out) you should be ok, but best to speak to your atty.

Since you have not yet filed, be sure and have your atty update your bank balances and such as of the day you file.

[miindebt]

Looks like we filed already, so we'll see what records the TT requests. Since we're self-employed, I'm expecting that he'll require at least a couple years of bank statements of all accounts...so this payment will show up. Guess we'll just see what happens!