Unexpected inheritance

[dhmissouri]

First post so bear with me.

My husband and I filed Chapter 7 on 06/23/10. My father passed away on 07/27/10. Our 341 meeting was held on 08/06/10 and went smoothly.

Now for the tricky part. My father and I were not close. We had not talked in some 8 years or better. However, I am his only legal heir. He owned no property outside of his checking account with $2600 in it and a 16 year old truck worth $1400. I was under the impression that there was no life insurance benefit and certainly none that left me as the beneficiary as I believed that his ex-girlfriend had probably been listed as the beneficiary if there was a policy. I, and my attorney, disclosed the truck and the checking account to the trustee and I was allowed to keep both. My husband and I had enough exemptions to cover these items and the money in the checking account just barely covered the final expenses at the funeral home. No issue from the trustee with any of that.

No creditors showed up at the 341 and the trustee filed the report of no distribution within a couple of days of the 341. Now, however, I find that there is a life insurance benefit of $18,000 which the insurance company has decided to pay to his estate. As the only next of kin I automatically become the executor/beneficiary of the estate as I understand it. However, there is a will still in place from when he and my mother were still married giving her power as executor so I could resign myself as executor and give her the position, correct?

I have a call in to my attorney and am waiting on a return call. However, I'm looking at all of the options and it would seem that one option is to make myself executor, disclose the sum that will be paid out in the next two to three months, and turn it over to the trustee. The other option would be to make my mother the executor and wash my hands of it all. If I turn it over to the trustee and no one files a claim, I would get the money back, correct? On the other hand, if a claim is filed, I could lose all of the money but no more than that amount, correct?

Thanks in advance for sticking with me through a trying and complicated post!

[tobee43]

i think one of the oddest questions asked on the filing petition was "do you expect an inheritance within the next six months"? i'm certain you had no idea that your father, ( and my deepest regrets for your loss), that you were going to lose your father a few days before your 341, or for that matter that you were named on his will.

how can one answer such a question. while i understand that many estates are tied up in probate court and perhaps some people file and know they have been listed and notified prior to their filing in the BK court, by the probate courts that they are named in an estate.

first, at this point, if you are, in fact the executor, of the insurance money, you may not, at this time know how much debt your father may have been in. for all you know...he may owe out 20k....at which time the estate would have to distribute the entire amount to the his creditors.

i would wait...and hear what the attorney says. however, when you say the word "inheritance" in the same sentence as attorney....just be careful! (no offence please to all the atty's here...my sister is one and my brother in law is a superior court judge), so i have absolutely NO ill will, however, there are some that may want to take advantage. just proceed with caution!

[gmk]

Who was the beneficiary of the insurance policy. If it was you I believe it should bypass the decedent's estate and go directly to you. I also think that life insurance proceeds, depending on your state of residence that are not tied up in the estate are treated a little differently than monies that pass through the estate. There may be exemptions for the proceeds. I think key to this is who was the beneficiary and to make sure that insurance company funnels the monies in the proper direction

[tobee43]

There may be exemptions for the proceeds

this is true, however, it will depend on how the actual probate laws are in the OP's state. also, if that is the case, there could be although, doubtful, tax ramifications since payouts on insurance policies are subject to tax exempt only up to a certain point in many states.


for example...if there was income property that the OP inherited..and it was sold while in probate the OP would be liable for the capital gain. each source type or to better address each estate may vary in it's entity and each type of entity of the estate has a different tax, or tax exemption etc., and or result in the way it effects the reciprocate. i.e. an insurance policy differs from an actual piece of lets say; i.e. an income property one inherits.

[dhmissouri]

Thank you for your replies.

I'm in Missouri as was my father, if that helps at all.

There technically was no beneficiary, that's why the insurance has to be paid out to the estate. At one time my mother was the beneficiary but due to divorce, the company changing hands, and my father's own personal issues there were several beneficiary designation forms on file and none was the clear beneficiary. So, the decision was made by the insurance company to pay the benefit to the estate and leaving off any one particular name. That's really why this is so difficult. Unless I revoke my right to be executor of the estate, I'll be named as the executor but all monies will officially be property of his estate until the time frame has passed for anyone to make a claim on the estate. That, in essence, is where the question lies as I understand it. Since it's not clearly the property of anyone other than his estate until such time as the probate timeline passes, I'm not sure how the 180 day rule would be effected.

Very, very confusing. I'll be interested to see what the attorney has to say tomorrow morning.

[gmk]

What you describe does complicate things. The 180 day rule is very specific, it has to do with the date your father died and whether that was within 180 days of your filing. How long probate may drag out has nothing to do with the equation. With the insurance going into the estate and with you being an inheritor of that estate I fear it may very well be fair game for the trustee. Sorry about that and I'm sorry for your loss.

[catleg]

Sadly (for you), I believe that BK law dictates that if someone dies within the 180 days after you file chapter 7, the estate gets to claim the inheritance. Regardless of when it's paid out. Of course you have regular BK exemptions to cover what you've taken so far.

Thus, your instinct to let your mother take charge of the estate and hopefully distribute funds to herself is probably the right move and keeps the BK trustee and your BK lawyers snoots out of things.

Your mother can always make a gift to you of the money later on down the road, or you can just inherit it from her.

[ccsjoe]

Agree with catleg. If you recuse yourself and your mother takes over, you have and never had constructive receipt as it was never, on paper, intended for you. May be your only shot here.

[dhmissouri]

Thanks again for your replies, it really does help to put some clarity in the situation. I'll be speaking with the attorney shortly to see what he recommends. One last question, though. Am I correct in my thinking that if I take this money and turn it over to the trustee she'll only pay out on claims that might come from our creditors and if no one makes a claim then we would get the money back?

[backtoschool]

Since you got the inheritance within 180 of filing, it has to be turned over to the trustee.

You will then become an asset case.

The trustee will take the money, pay it out to all the creditors who file a claim. How much each creditor gets is calculated based on how big a percentage of your total debt, each creditor represents. Only creditors who file a claim will get a pay out. Once checks are mailed out by the trustee, the creditors have 90 days to cash the check. Any creditors that do not cash their check in 90 days, lose their right to that money and the money goes back into the estate and is paid out to the remaining creditors.

You will not get a refund for the money.

This is how it worked in my asset case, anyway. Of course as with anything, ymmv.

[bigtim6656]

I think that is the way it is here. A friends mom died owing hundreds of thousands of dollars in debt and the only thing the kids got was the 30k in life insurance.

Who was the beneficiary of the insurance policy. If it was you I believe it should bypass the decedent's estate and go directly to you. I also think that life insurance proceeds, depending on your state of residence that are not tied up in the estate are treated a little differently than monies that pass through the estate. There may be exemptions for the proceeds. I think key to this is who was the beneficiary and to make sure that insurance company funnels the monies in the proper direction

[catleg]

Also if your dad had any creditors in theory the executor should pay them off but in practical terms they usually get stiffed.

[tobee43]

Since you got the inheritance within 180 of filing, it has to be turned over to the trustee

.


this will ONLY apply if the estate itself is clear of any debts....prior to ANY distribution...all debts must be cleared by the trustee of the estate. so, first, i would see if your father owes anyone after the estate is released from probate, if it already is not. tell your atty...that the trustee will need to examine the entire estate prior to them taking the money....it's the law actually...you can't take from an estate and not pay the estate's bills to someone else.

[dhmissouri]

I've thought about that. I have no idea if he owed anyone or not but I'm inclined to think not. He pretty much stayed to himself, didn't really have much asset wise, etc. He passed away at home so there is no final hospital bill, etc. I suppose there's really no way to know whether he owed anyone or not, though, until the estate is put through probate and his creditors have time to file a claim.

One last thought that ran through my head that may or may not be an option for keeping the money. My husband just this week returned to work after being out for several months due to the economy. He makes substantially more than I do and this is the primary reason we filed for bankruptcy in the first place. In addition, we're having a 3rd child in October. Since the inheritance, if all of it is available and not caught up in paying my father's creditors, only turns out to be $18,000 does anyone think it possible that a letter of explanation to the trustee might convince her to let us keep the money? Simply put, with my husband's significant drop in income this year $18,000 would go a long way in offsetting the cost of unpaid maternity leave, hospital bills for the new arrival/delivery, and costs of daycare for 3 children vs. 2. I can understand her expecting immediate surrender of amounts in the $30-$40,000 range or more but honestly, $18,000 isn't that much money and would make a world of difference in putting us back on our feet.

Thoughts on a letter to the trustee asking her to allow us to keep the money and use it to put ourselves on a brighter track?

[backtoschool]

I've thought about that. I have no idea if he owed anyone or not but I'm inclined to think not. He pretty much stayed to himself, didn't really have much asset wise, etc. He passed away at home so there is no final hospital bill, etc. I suppose there's really no way to know whether he owed anyone or not, though, until the estate is put through probate and his creditors have time to file a claim.

One last thought that ran through my head that may or may not be an option for keeping the money. My husband just this week returned to work after being out for several months due to the economy. He makes substantially more than I do and this is the primary reason we filed for bankruptcy in the first place. In addition, we're having a 3rd child in October. Since the inheritance, if all of it is available and not caught up in paying my father's creditors, only turns out to be $18,000 does anyone think it possible that a letter of explanation to the trustee might convince her to let us keep the money? Simply put, with my husband's significant drop in income this year $18,000 would go a long way in offsetting the cost of unpaid maternity leave, hospital bills for the new arrival/delivery, and costs of daycare for 3 children vs. 2. I can understand her expecting immediate surrender of amounts in the $30-$40,000 range or more but honestly, $18,000 isn't that much money and would make a world of difference in putting us back on our feet.

Thoughts on a letter to the trustee asking her to allow us to keep the money and use it to put ourselves on a brighter track?

A letter of the trustee is not going to do any good in letting you keep the money. The trustee is discharging your debts, that money legally has to go to your creditors, if it cannot be exempted under you exemptions. The trustee also gets paid out of that money, so the trustee has no incentive to give the money away, but legally, the trustee is bound to distribute that money to creditors.