Life Insurance Inheritance

My question involves bankruptcy in the state of: Virginia

Boy do we have a sticky situation:

My brother in law had a massive heart attack and we don't know if he will recover. We found out that his insurance policy instead of being left to his two sons (they were babies at the time it was taken out) is being left to my father in law who has since passed. That means that it would pass to my father in laws decendants which would be my husband and his sister.

We, myself and my husband are 25 months into a chapter 13 plan and cannot accept this money. What do we do to protect the boys who this money is meant for. It's not meant for my husband or his sister and we had NO idea that my father in law was even on the policy.

Can my husband just disclaim it and let my sister in law take it?

First off, we don't know if your brother-in-law will pass away from the heart attack.

However; when you learn that you are going to receive a large amount of money (ie inheritance, life ins.) during the time you are in a Chapter 13 bankruptcy (no matter how far along you are), you must immediately contact your bk attorney. Whether you can keep some or all of the money or must turn it over to the Chapter 13 trustee depends on several factors. The key question is often…is this money considered to be “disposable income” which you are required to turn over to the trustee? Your lawyer can help you determine this.

In cases where it would go to the trustee, if the beneficiary disclaims it & gives it to another, it could be considered a fradulent transfer - transferring money to another person to keep it from going to the creditors.

Well, he's having multiple organ failure. What if you can proof that what you are doing is not fraud, I mean it's not. My husband is not the rightful heir to this and isn't even the beneficiary. How can it be considered disposable income if it's going to the boys where it should be at in the first place. we are not keeping it. it's their livelihood

Interesting enough I just got done talking to a bankruptcy attorney who tells me that it's not necessarily so that the proceeds go to the deceased benef. descendents...that usually in a case where the beneficiary dies the proceeds revert back to the estate of the insured...

I do remember last week talking to the benefits office about his short term disability checks and to get them started and that's how I found out my father in law was the benf. and I told them that he had died years ago and I said what do the boys do to get the money since it's theirs and she told me that if my brother in law didn't have a will that one of the son's would have to go to court and apply for administrator of the will. So, I assumed that meant that the money in fact goes back to the estate of the insured.

Then my neighbor had her will done and he was at her house and she just mentioned about my father in law being on the policy and was dead and he said it went to his descendents and see THAT'S why I freaked and got so upset mainly because 1) it's not my husband's money and it's really meant for the boys 2) no one in the family even knows we are in chapter 13...I mean how in the world would we explain it?

I just know that it's not disposable income since my husband is really not the rightful heir to this and I can tell you that my husband will do whatever he has to do to protect his brothers' sons.

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Quoting rainmyst

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Interesting enough I just got done talking to a bankruptcy attorney who tells me that it's not necessarily so that the proceeds go to the deceased benef. descendents...that usually in a case where the beneficiary dies the proceeds revert back to the estate of the insured...

I do remember last week talking to the benefits office about his short term disability checks and to get them started and that's how I found out my father in law was the benf. and I told them that he had died years ago and I said what do the boys do to get the money since it's theirs and she told me that if my brother in law didn't have a will that one of the son's would have to go to court and apply for administrator of the estate. So, I assumed that meant that the money in fact goes back to the estate of the insured.

Then my neighbor had her will done and he was at her house and she just mentioned about my father in law being on the policy and was dead and he said it went to his descendents and see THAT'S why I freaked and got so upset mainly because 1) it's not my husband's money and it's really meant for the boys 2) no one in the family even knows we are in chapter 13...I mean how in the world would we explain it?

I just know that it's not disposable income since my husband is really not the rightful heir to this and I can tell you that my husband will do whatever he has to do to protect his brothers' sons.

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**administrator of the estate (I had administrator of the will)

If the life ins. proceeds does go to the estate of deceased/insured (& not husband/his sister), the estate assets will be distributed as per the will or if there is no will, they will be distributed per the intestate succession laws of the state.

Work with your bankruptcy attorney.

Adding to my above post, the reason I mentioned a possible fraudulent transfer previously is because that is many times how the bankruptcy court will look at it. If you receive an asset/income/inheritance during a bankruptcy (& if it is not exempt from the creditors for some reason - need to check with your bk attorney on this) & you decide not to take it & give it to another, the courts can consider that a fraudulent transfer. You transferred the "asset" to another in order to keep it from going to pay creditors.

You can sometimes legally disclaim an inheritance but it has to be done in a timely manner & done through the court. However, the person cannot designate who should get it (their share) - it will be determined by the will or if no will, by state law.

You always need an attorney's help when receiving any type of "asset" during a bankruptcy.

I hope everything works out the way you want it to.

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Quoting Betty3

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If the life ins. proceeds does go to the estate of deceased/insured (& not husband/his sister), the estate assets will be distributed as per the will or if there is no will, they will be distributed per the intestate succession laws of the state.

Work with your bankruptcy attorney.

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Yes which in this case according to our state law goes to the next of kin which would be his TWO sons and would have nothing whatsoever to do with my husband. there is no will. my husband is NOT a beneficiary of any inheritance under his brothers will.

If there is no will & the two sons are the nearest of kin, then yes the assets of the estate should go to the sons.

rainmyst - Hi. I just thought I would mention that before any estate assets are distributed to any heirs, any expenses, lawyer fees (if any), creditor debts (if any), etc. will have to be paid first. The remaining assets will be distributed to the rightful heirs.

Probate of the estate will have to be opened at death & it seems per one of your posts one of the sons will do that. I don't know how big the estate is so I don't know how involved that might be.