Life insurance policy benificiary question...

[rogue22]

I have another question in regards to being listed as a beneficiary on a life insurance policy.. My wife is set to inherit money from a life insurance policy that she was listed as one of the beneficiaries. On the prepared paperwork, it states that we can collect the lump sum or put it into a tax deferred annuity offered by the same company that the life insurance policy was through. So my question is, is it ok to put it into the annuity just before filing ch.7? Obviously, we wouldnt be able to touch the money till after the Bk has been discharged.

One of the other beneficiaries was instructed to this by his lawyer since he filed ch.13 a year ago. Supposedly, this will legally protect it from the trustee.

[AngelinaCat]

Hi rogue: I moved your question into a thread of its own so that it will be seen and responded to better. When questions are buried at the end of an older thread, they tend to get lost and not responded to.

As to your question, I would wait at least six months, if not a full year or longer, between setting up your annuity, and filing bk. My concern is that this transaction could be looked as a 'fraudulent transfer' designed to hide assets.

[ValleYum]

Aren't proceeds of life insurance policies exempted by FL law? It looks like annuities may be exempted for this as well.

Insurance

222.13 - Death benefits payable to a specific beneficiary.

222.14 - Annuity contract proceeds excluding lottery winnings; life insurance cash surrender value.

222.18 - Disability or illness benefits.

632.619 - Fraternal benefit society benefits.

http://www.bkforum.com/wiki/Florida

[AngelinaCat]

The problem *may* be that if this couple is trying to take exempt assets and roll them into another instrument right before filing. I don't know how that would work right now. It may be perfectly ok; I am concerned about the timing and how it might appear....

[SunshineGal]

Is your wife filing with you? I would be sure to ask your attorney about the life insurance and annuity.

I found this regarding life insurance

"The general rule is that any property a debtor acquires after he files his bankruptcy petition is not part of his bankruptcy estate. The biggest exception to the general rule is money received as part of an inheritance or life insurance policy. All property the debtor receives by “bequest, devise, or inheritance:” or as a beneficiary of someone’s life insurance within 180 days after the filing date becomes part of the bankruptcy estate and is taken to pay the bankruptcy creditors. The debtor gets any part of the inheritance or insurance proceeds remaining, if any, after the creditors are paid."

http://www.bankruptcyorlando.com/2010/09/inheritance-from-parents-revocable-living-trust-within-180-days-is-not-captured-in-debtors-bankruptc.html

SG

[AngelinaCatHub]

Aren't proceeds of life insurance policies exempted by FL law? It looks like annuities may be exempted for this as well.



http://www.bkforum.com/wiki/Florida

This is true. No matter what the proceeds are exempt. The annuity is a very good idea. Here is how that works, it is not taxed, you get a draw for the year, upon the expiration of the annuity (the annuent dies) the whole value of the policy is restored 100%. In other words the proceeds become another life policy that pays a percentage out, and only that percentage is taxable. The policy can make money and is invested. Every five years you may change the draw percentage by the current value. If the value goes down (let's say it was invested in stock) your draw will not go down but stay the same no matter what. Once the person dies, the full amount is restored even if the value goes to zero.

We have one in our Charitable Trust. It could not be touched or levied. It is life insurance. Ours is through Hartford. This is a way to preserve capital in a family as the named beneficiary can get the whole amount or set up another annuity. Our beneficiary is a charity as we have it in a Charitable Trust. 'Hub

[SunshineGal]

I would have included the heading in the link from the blog, but I didn't want to complicate matters. Here is the heading:

"Inheritance From Parents' Revocable Living Trust Within 180 Days Is Not Captured In Debtor's Bankruptcy Estate"

What I got from it is that Life Insurance proceeds become property of the estate where a Trust does not. My opinion is that it will depend on how the paperwork is written up but I'm not an attorney, nor have I dealt with this myself. I just know my attorney told us that if we inherited money within 180 days we needed to notify the trustee.

[rogue22]

My concern is that this transaction could be looked as a 'fraudulent transfer' designed to hide assets.

Well it wouldn't be a fraudulent transfer... its just rolling the money over into the annuity, we have to do something with it. Like I said, its an option thats written right in the paper work whether to take the lump sum or roll it over into the annuity. In fact, even if we werent facing ch.7, we would probably roll it over into the annuity anyways. From what I was told, if I roll it over into the annuity, the IRS isn't even notified. They are only notified when I withdrawel money from it so it can be taxed (of course..).

Its not like we're receiving the lump sum of cash and then putting it into an annuity.. its automatically being signed over into it without us ever actually having it in any of our personal bank accounts.

Thanks for everyones input.. I notified my lawyer of this and waiting for his response.

[tcreegan]

Hi rogue,

Good old Fla statute 222.13, roll that baby anywhere you want, its exempt.

My only suggestion was to keep it by itself, don't "co-mingle" it with other funds.

Good luck w/ this, let us know how it turns out ?

Tom in Colo

[rogue22]

Update: My lawyer said that the annuity is protected, but I need to wait 6 months before filing so that it doesn't look bad to the trustee. He also said that I can withdrawl small amounts of money from it for normal living expenses. For example my unemployment is about to run out so its ok to supplement the annuity money.