My husbands mother passed away with credit card bills left to pay. She has a small life insurance policy of $15,000. That will be enough to take care of the funeral expenses.
My son was in a nursing home on medicaid. The cash-in value of his $50,000. life insurance policy was less than the $2,000 in assets allowed by medicaid. When the cash value accumulated to more than $2,000 I would withdraw the excess and take him on a mini trip somewhere. At the time of his death the policy, with me as his beneficiary, was not part of his estate and I did not have to pay taxes on it.
BTW, a funeral home can be assigned as the life insurance beneficiary. Unfortunately, most states do not require funeral homes to return any left over money after the funeral expenses are covered.
Cemetery expenses: plot, the opening of the plot, graveling, and headstone are not part of the funeral home’s expenses. So be careful.
Also, if your parent was on Medicaid and an individual is the beneficiary of the life insurance policy they will get a bill from medicaid for the full amount of the policy pay out and have to pay it back as it is considered a gift.
I agree, it is part but separate. Both my parents passed recently, and my mom was spiteful to the end; had her Will re-written to cut me out except for $10. The whole process cost more to an attorney to make a very clear point, as if I didn't get that while she was alive, the she was spiteful and as in previous discussions, wanted power to the end. She had done this with my kids supposedly untouchable college funds and other things as well in life. There was, however, an insurance policy my dad left for my brother and I, and she either didn't know or didn't touch that. It took months to settle separately, but my understanding is they are usually quicker. In my husband's case, he lived with a lady and was a caretaker. At the funeral home, they found out that he, not the relatives, was the beneficiary. He then paid the funeral costs from that, but I get the impression that is more etiquette rather than obligation. The family was there making the arrangements for an expensive funeral, so technically he was not obliged to since the brother was in charge, but he did pay and that check arrived quickly in that case.
I know that life insurance in our state is not considered part of an estate for tax purposes unless it brings the estate over the dollar limit for estate inheritance. My dad passed in FL and left behind a $50k life insurance policy to my mother and she did not pay any taxes. In NH my father in law has numerous large dollar amount policies...some left to his spouse, his children and his business to secure finances for his children's inheritance taxes on inheriting the business, homes, etc. We have been told by our attorneys numerous times that we will not pay taxes on any of these policies...including those benefiting the business......with an exception. As far as I know the beneficiaries receive the money and it's done...no real estate ties.....unless they inherit more than the $1 or $2 million dollar allotment (this has changed in the last few years so I'm unsure of the amount now).. Then they would have to pay taxes on the amount over that allotment..... But definitely seek out a reliable attorney's input....because it could be different in different states.
One must be careful with life insurance, it must be reviewed on a regular basis. Mnb203 this is correct in most states. It is an asset when applying for assistance such as Medicaid. After death, it is not an asset to the estate except for Estate Tax purposes as Maggie states. It is not part of the Estate unless there is no living Beneficiary named, or the Estate is named the Beneficiary. Also the Will, as some seem to think, does not control the disposition of the Insurance Proceeds, the named Beneficiary gets the money, that is good reason to make sure the Beneficiary is updated. In Maryland a divorce will negate the divorced spouse as beneficiary and unless the Beneficiary is not changed the Estate will become the Beneficiary.
In massachusetts it is considered a asset. I had to turn it over to the funeral home but I am still responsible to pay the premiums on it out of my pocket. I am not allowed to use her money to pay for it. She is in the process of applying for Medicaid. Best of luck to you!!!
The only experience I have had with this is once you have spent down all available funds, and then apply for Medicaid, the life Insurance is considered an asset and you have to list it. Prior to all funds being spent down I set up a burial fund and bought her a plot next to my Dad. I have not been told this but I believe when my Mom passes if it is not needed in the burial the State will take it. When my Dad passed Mom was the beneficiary and accept for the burial fund all of it was used as private pay to the Nursing Home until gone, the Mom went back on Medicaid. If your loved one has not been on any assistance not sure how it works. This may or may not help you, but I think whomever it is left to is the key to your answer. Take care of yourself!!
They can be considered "part of your estate" for estate tax purposes only. It is NOT considered part of your estate to settle bills and the will does not control how it's paid out.
Agree with Matt383...unless the beneficiary is THE ESTATE which happens too often. Then a probate free, tax free benefit becomes part of the probate estate....and can be taxed. Otherwise the benefit goes to the beneficiary privately.
As Sunflo2 stated, it is part of the estate. The beneficiary superceeds what ever is in the will. A creditor Cannot put a lien/claim on unpaid bills against a Life insurance policy. Unpaid debts are paid out of remaining estate.
Yes. It is considered part of the estate, however if it is left or payable to a particular beneficiary, then it gets distributed to them -- not collectively split with remainder of the estate.
An estate attorney will help you sort thru the particulars and settle outstanding debts prior to distribution of the remaining property.
I don't think you can collect the life insurance and then not settle unpAid debts.
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Shop around, or even ask your funeral directors to show you their cheapest.
Cemetery expenses: plot, the opening of the plot, graveling, and headstone are not part of the funeral home’s expenses. So be careful.
Also, if your parent was on Medicaid and an individual is the beneficiary of the life insurance policy they will get a bill from medicaid for the full amount of the policy pay out and have to pay it back as it is considered a gift.
Talk to a lawyer.
Mnb203 this is correct in most states. It is an asset when applying for assistance such as Medicaid. After death, it is not an asset to the estate except for Estate Tax purposes as Maggie states. It is not part of the Estate unless there is no living Beneficiary named, or the Estate is named the Beneficiary. Also the Will, as some seem to think, does not control the disposition of the Insurance Proceeds, the named Beneficiary gets the money, that is good reason to make sure the Beneficiary is updated. In Maryland a divorce will negate the divorced spouse as beneficiary and unless the Beneficiary is not changed the Estate will become the Beneficiary.
An estate attorney will help you sort thru the particulars and settle outstanding debts prior to distribution of the remaining property.
I don't think you can collect the life insurance and then not settle unpAid debts.