Executors and Probate

[rmalc3]

My mother passed on 12/22/01.

Question#1: My brother and I just received the monies from our mothers life insurance policy. It was less than $25K. Is this money taxable?

Question#2: My understanding is that life insurance is NOT part of her estate. I've gone through all of her bills and she had several credit cards with balances due. Are we legally bound to use the life insurance money we received to settle her debts?

Question#3: My mother did not own any property as side from furniture and clothing. Do we have to establish an estate? Do we have to name and executor? If so, can it be a family friend or does they have to be an attorney?

Thanking you in advance.

 

[ALawyer]

Life insurance proceeds are NOT taxable, at least not in these circumstances.

The money is payable to the beneficiary, not the estate. The obligation of the beneficiary you use the money to pay expenses of the estate -- absent having guaranteed them -- is limited or non-existent in most cases.

The creditors do have a claim against the estate for the amounts owed. It is unlikely that they would file suit if all there was left was ordinary clothing and furniture. But anyone taking them is liable to creditors to the extent of value. You may want to use your state's simplified process for handling small estates anmd you might be able to do that on your own.

 

[advisor10]

1-15-2002

DEAR RMALC:

You may want to check with a local CPA or income tax professional to find out for sure whether or not the life insurance proceeds are taxable, either on the state or federal level.

You can spend the life insurance proceeds any way you wish and can not be held liable for your mother's debts--her estate will basically be considered bankrupt and the debts will have to remain unpaid and uncollectible and will probably be written off at a later date. However, it would be the moral thing to do to make small payments towards the debts in good faith.

You would need to consult with a local attorney or the county courthouse probate court clerk to find out what the minimum amount of an estate is worth before being required to file for probate. Since it appears there is little or nothing in this estate, you will probably not be required to file anything for it.

SINCERELY,

advisor