ESTATE PLANNING: Don't expose shielded asset to creditors

2013-10-12T15:21:00Z ESTATE PLANNING: Don't expose shielded asset to creditorsChristopher W. Yugo Times Business Columnist
October 12, 2013 3:21 pm  • 

Q: Since life insurance proceeds payable to an estate are no longer subject to inheritance tax, is it OK if a person doesn't name a beneficiary on a policy so it goes to the estate?

A: One of the reasons it was ill-advised to allow proceeds from a life insurance policy to be paid to the decedent's estate was because the proceeds would be subject to the Indiana Inheritance Tax.

Life insurance proceeds that were payable to a beneficiary avoided inheritance tax. Since the inheritance tax has been revoked, proceeds payable to an estate are no longer subject to the tax which removes a major consequence for failing to plan properly.

However, remember that taxation is only one reason that it wasn't a good idea to allow life insurance proceeds to be payable to an estate. Another equally, if not more important, reason not to allow life insurance proceeds to be payable to an estate is that it opens them up to creditors. If the proceeds end up in the estate, the money may be made available to the claims of creditors. This is not the case for proceeds payable to an individual which are shielded from a creditor's reach.

Now even if you don't have any creditors, you don't know what will be going on when you pass away. There could be a lot medical or nursing home bills that need to be paid. Why take the chance with exposing an otherwise shielded asset to creditors?

Q: My mom has been trying to sell her house for a while without much success. She's leaving for Florida in a couple of weeks and will be there all winter. She has listed my sister and I as executors in her will. If she gets an offer while she is gone, can my sister and I sell the home for her because we are executors?

A: Unfortunately, no. The fact that you are named as personal representatives in a will does not convey any authority to you during your mother's lifetime. During your mother's lifetime, her will is simply a piece of paper. An important one, but still simply a piece of paper who's affect doesn't come into effect until after her death.

Although the will won't help, your mother can execute a power of attorney and grant you and your sister the authority to handle the sale. The title company may want your mother to sign the deed herself, but that can be sent to her in Florida.

If you want to use the power of attorney for the closing, I suggest that you notify the title insurance company sooner than later. The title insurance company will need to review the power of attorney prior to the closing and approve it. However, once it has been approved, you should be good to go.

Opinions are solely the writer's. Christopher W. Yugo is a Crown Point attorney. Address questions to Yugo in care of The Times, 601 W. 45th Ave., Munster, IN, 46321 or to Yugo's information is meant to be general in nature. Specific legal, tax, or insurance questions should be referred to your attorney, accountant or estate-planning specialist.

Copyright 2014 All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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