Saturday, 23 March 2019

Estate Planning: Questions about life insurance and personal property

Q: I remember that insurance proceeds shouldn’t be left to an estate because they would be subject to inheritance tax. Since Indiana doesn’t have an inheritance tax anymore, is it OK to pay life insurance proceeds to an estate?

A: It’s true that while Indiana had an inheritance tax, it wasn’t a good idea to make life insurance proceeds payable to an estate. That’s because life insurance proceeds payable to an individual weren’t subject to inheritance tax but life insurance payable to an estate was.

However, inheritance tax was only one of the reasons that it was a bad idea to make life insurance proceeds payable to an estate.

Another equally, if not more important, consideration is creditors. Creditors cannot reach life insurance proceeds to pay claims if they are payable to an individual. They can, however, get to life insurance proceeds that are payable to an estate.

Now, even if you don’t have any outstanding debts, it’s difficult to know what will result from your death. There could be medical bills and ambulance rides and all of the things that result when someone becomes very sick.

Sometimes a person may want to make insurance proceeds payable to the estate so that there is money available for expenses and burial. However, unless there is a good reason to make life insurance proceeds payable to the estate, it may be a good idea to go a different route.

Q: Does the surviving spouse always own the personal property located in the marital home when a spouse dies?

A: I won’t say always, but usually. Indiana law provides that the surviving spouse owns the household personal property if it was acquired during the marriage and available to both spouses.

This presumption is rebuttable, but it’s really difficult to do that. If it’s a marriage later in life and each spouse brought personal property into the home, an argument can be made that it should transfer according to the deceased spouse’s estate plan.

Also, a writing left by the deceased spouse indicating a contrary intent can also be evidence to rebut the presumption. However, you just don’t see anything like that very often.

You should assume that all of the personal property located in the home will belong to the surviving spouse. If that isn’t what you want, you should see an attorney and plan accordingly.

Thanks for the questions.


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