Beneficiary/personal representative(inadvertent) screw up?

[58Chrysler]

What is the name of your state? Michigan
My mother passed in March 08. She had a life insurance policy naming my younger sister(also the personal representative) as beneficiary, and I am going to quote directly from my copy of her Will( estate is in informal probate)
"I have named my daughter(xxx), as the beneficiary under my insurance policy from( comapny name)This was done for convenience purposes and I have directed her to use these funds for my funeral expenses and any unused portion to be distributed though Section 1 of this article"
Section 1, is of course the naming of her 5 children.
My sister has recieved these funds, and acting as executor/personal representative. placed them either in an estate account or a joint account that she had with Mom. I am not at this point suggesting that she is going to attempt keeping all the money! I think she is under the impression that the life insurance should be part of Mom's estate. I told her that to the best of my knowledge that was INCORRECT and by co mingling that money with Mom's estate she was simply handing the government tax money that it's not entitled to. I do believe that she did not know that life insurance passes outside the estate and to the best of mY knowledge isn't taxable( I know I didn't have to pay taxes on my husbands Life insurance benefits when he passed away)
She stated that she would check with the probate attny ASAP, as to moving that money out of of the estate if she was in error to put the money into the estate,and says she retained documentation substatiating that those monies were life insurance proceeds.

Again, at this point I am NOT suggesting that my sister is trying to screw the rest of us over, I think she truly was unaware that life insurance passes OUTSIDE the estate. I have no quarrel, and I'm sure the other siblings don't either, with Mom's funeral expenses being paid out of the money.
Again, at this point I believe her action to be inadvertent, due to lack of knowledge about life insurance being outside the estate. But I would like to know if there are other pitfalls with this situation. There is also a matter of a joint account that was in Mom's and her name, and I am unclear whether she put the life insurace proceeds into THAT account or whether there IS a separate "estate" account, at one point in the conversation she said one thing and at another point she said something else about the only thing being probated was Mom's house( actually the cash proceeds of the SALE of it)which,after payment of expenses and opbligations, is also to be divided among the 5 of us.

I just want to get mY OWN information here and not rely on her interpretation of what the probate attorney says.
Cindy OWhat is the name of your state?

 

[moburkes]

Your sister is not required to use the life insurance money to pay for your mom's funeral.

Sorry about your loss.

 

[anteater]

...My sister has recieved these funds, and acting as executor/personal representative. placed them either in an estate account or a joint account that she had with Mom. I am not at this point suggesting that she is going to attempt keeping all the money! I think she is under the impression that the life insurance should be part of Mom's estate. I told her that to the best of my knowledge that was INCORRECT and by co mingling that money with Mom's estate she was simply handing the government tax money that it's not entitled to...

Your sister is incorrect that the insurance proceeds are part of the probate estate. However, unless your mother's taxable estate is greater than $2 million, it is not subject to federal estate tax. And, Michigan's estate tax is effectively repealed because it was based upon the allowable federal state death tax credit and there is no federal state death tax credit now. Unless you are thinking of some other non-estate tax, sister's goof does not really result in additional taxes.

But... If your mother was the owner of the life insurance policy, the proceeds are part of her taxable estate regardless of whether your sister was the beneficiary or where she deposited the proceeds. The proceeds would be included in calculating mother's taxable estate.

There is a difference between the gross or taxable estate and the probate estate. Simplifying, the value of anything that your mother owned - whether solely-owned, jointly owned with right of survivorship, or with beneficiary designations (including the proceeds from life insurance) - comprises the gross or taxable estate. Only assets that were solely-owned and that are to be distributed according to a will or intestacy are part of the probate estate.

 

[Dandy Don]

Now that you have received your advice, please delete the double posting you have placed on this message board. Thank you.

 

[58Chrysler]

futher clarificatio

OK, thanks for the help so far and I have removed the accidental double post.
As for my sister being "required" to pay funeral expenses out of the life insurance, that was the INSTRUCTION given per her will, and the "unused portion" distributed to her 5 children.

I honestly don't KNOW who the "owner" of the policy would be other than Mom, but it was apparently part of a General Motors retiree benefit package. If it is in fact in some way taxable, does that money have to be held until the estate is settled?

I'm asking this because they youngest sister quit her job to care for Mom, I mean she moved Mom right into their home!and she and her family were the 24/7 caregivers.Of course she was compensated,but that compensation ended when Mom passed away. Now, due the the DISASTER area that is Michigan's economy,she's not been able to get back into the "regular" workforce,and quite frankly I'm worried about her and her family. I'd like to see that money(life insurance) distributed ASAP if it can be done
As far as any state or Federal estate taxes, it will be a minor miracle if her estate totals up to $200K,let alone 2 million.
When my husband passed in 2001, there was no need for probate, everything simply passed to me and if there was some sort of tax liability attached to the life insurance( thru his labor union) I certainly was never informed of that.
Cindy O

 

[anteater]

As for my sister being "required" to pay funeral expenses out of the life insurance, that was the INSTRUCTION given per her will, and the "unused portion" distributed to her 5 children.

Without intending to beat up on you... You aren't getting it. The named beneficiary of the life insurance receives the proceeds. It becomes the beneficiary's money. If your sister honors that "instruction," that is wonderful. But what the will says is not enforceable if she doesn't.

If the estate value is only going to be around $200K, then there are no estate taxes to worry about. I am slightly familiar with GM retiree benefits and know that part of the package is (or at least was) life insurance. If it is a life insurance policy, then there are also no income tax consequences.

 

[tranquility]

The person who is the beneficiary of an insurance policy is under no obligation to follow the wishes of the deceased as expressed in her will. To enforce the will's provisions, the deceased should not have designated a beneficiary and let the insurance payment flow into her estate.

 

[58Chrysler]

and more clarification

OK I get the part about no LEGAL way to enforce the instructions in Mom's will.
Let me add that the sister who is the PA/executor and former POA is NOT the same sister that took Mom into her home and cared for her. I see no reason for the sister named as beneficiary of the life insurance to ignore Mom's instructions regarding the life insurance proceeds out of some sort of resentment or spite.
Though I guess I should ask, (because I don't see any SPECIFIC reference in either the will or the other documents) is there some defined legal formula/procedure/provision within the probate process that addresses the matter of reasonable compensation to the PR,even if they are one of the beneficiaries?

I do not at this time think that the sister who is PR has any intention of disregarding the instructions in Mom's will and keeping the entire life insurance benefit for herself,I'm just trying to GENTLY expedite the distrubution of the life insurance monies,due to my concerns about the youngest sister who WAS the primary caregiver.
Cindy O

 

[anteater]

Though I guess I should ask, (because I don't see any SPECIFIC reference in either the will or the other documents) is there some defined legal formula/procedure/provision within the probate process that addresses the matter of reasonable compensation to the PR,even if they are one of the beneficiaries?

Michigan is a state whose statutes only say that the compensation be "reasonable." You will need to ask a Michigan attorney if there are informal guidelines regarding reasonability. Generally, something between 3% and 5% would pass muster in most states.

The Personal Representative being a beneficiary is not relevant. Although, since the compensation is taxable income, PR's who are also beneficiaries often weigh the trade-off between the taxable compensation and what they would receive as a tax-free distribution.

 

[Dandy Don]

The main problem that this was an inadvertent error made by your mother when she did her will. What she did not know is that the insurance money is a separate asset that it outside of probate because a beneficiary was designated, therefore the sister who is the beneficiary DOES NOT HAVE TO ABIDE BY ANYTHING THAT IS WRITTEN IN THE WILL, since technically it is HER money alone. Your only hope for a good outcome now is that she hopefully will agree out of a sense of obligation and what is morally correct to pay the funeral expenses. Your mother would have been better off not naming a beneficiary and then the money would have been payable to her estate.

But do not wait for a DISTRIBUTION, since she does not have to do that. If she does not know that fact, then she may go ahead and distribute the funds as the will instructs, but I highly doubt it.

DANDY DON IN OKLAHOMA ([email protected])

 

[58Chrysler]

"legally enforceable" vs " the right thing"

[QUOTE

But do not wait for a DISTRIBUTION, since she does not have to do that. If she does not know that fact, then she may go ahead and distribute the funds as the will instructs, but I highly doubt it.

DANDY DON IN OKLAHOMA ([email protected])[/QUOTE]

This is good to know. She did indicate that she was going to check with the probate attorney. Hopefully, this attorney( a specialist in probate) will inform her of that, while also pointing out that a blatant disregard of Mom's expressed wishes could lead to complications...I've read several of these forums and noticed a frequent response that anyone can sue anybody over anything anytime LOL.

If it's OK to use "legal right" to ignore wishes expressed in someone's will, then I can see another clause in the will regarding an undocumented and technically unsubstantiated "business loan" made to my brother that has an unquantified "unpaid balance" that could also be "ignored" because it's "not legally enforceable", lacking any kind of supporting documentation and having nothing but my brother's personal statement as to the amount of the unpaid balance. Would I be right in thinking I could withdraw my consent to accept his statement and simply have the whole clause "ignored" unless actual documentation of this loan and unpaid balance can be verified? ( I already know it can't )After all, in the absence of supporting documentation, that "instruction" is ALSO "legally unenforceable", right??
Cindy O

 

[anteater]

This is good to know. She did indicate that she was going to check with the probate attorney. Hopefully, this attorney( a specialist in probate) will inform her of that, while also pointing out that a blatant disregard of Mom's expressed wishes could lead to complications...I've read several of these forums and noticed a frequent response that anyone can sue anybody over anything anytime LOL.

No idea what you are talking about any longer. The life insurance proceeds are your sister's money. The proceeds are not part of your mother's probate estate. The will applies to how the probate estate assets are distributed. Since the proceeds are not part of the probate estate, that section of the will is simply not applicable. Whaever your sister eventually does, if you want to dispute her actions legally, that is your right.

An analogous situation: I write a will. In it I state that the assets in my XYZ Brokerage Account should be used to pay my final expenses. At some point, I decide to add a designated Transfer on Death beneficiary to my XYZ Brokerage Account, my son Jethro. I die. Who gets the assets in the account? Do they have to be used to pay my final expenses? Nope. Jethro gets them. If he chooses to pay the final expenses with the assets, that's great. (He always a good boy.) If he doesn't... well, it's my own fault for adding that beneficiary designation.

If it's OK to use "legal right" to ignore wishes expressed in someone's will, then I can see another clause in the will regarding an undocumented and technically unsubstantiated "business loan" made to my brother that has an unquantified "unpaid balance" that could also be "ignored" because it's "not legally enforceable", lacking any kind of supporting documentation and having nothing but my brother's personal statement as to the amount of the unpaid balance. Would I be right in thinking I could withdraw my consent to accept his statement and simply have the whole clause "ignored" unless actual documentation of this loan and unpaid balance can be verified? ( I already know it can't )After all, in the absence of supporting documentation, that "instruction" is ALSO "legally unenforceable", right??

Since you do not say what the will says regarding this loan, then it is difficulr to hazard a guess where you are going. It is the executor's duty to collect the assets of the probate estate, including debts owed to the deceased. If the executor has evidence that a loan existed, then it is her duty to collect it. Again, if you are unsatisfied with the executor's actions, as a beneficiary, you are free to dispute them.

Your last question is simply a non sequitur when applied to the life insurance proceeds.

After all, in the absence of supporting documentation, that "instruction" is ALSO "legally unenforceable", right??

 

[58Chrysler]

Decedent's written instructions regarding life insurance

OK I DO understand that Mom made a mistake in drawing up her will and designating beneficiary of life insurance policy. Why would whatever professional person that helped her draw up her will allow her to make that mistake? Would it be grounds to nullify the etire will?
Cindy O

 

[farmgirl_48732]

I'm not a lawyer but. .

The person drawing up the will is just going by what your mother told them to do. I don't believe that would nulify the will at all. They did what she told them she wanted.

 

[58Chrysler]

Contesting Will?

Granted that sister who is life insurance beneficiary is not legally obligated to honor the instructiions in Mom's will regarding disposition of that money. I GET that. But I can see this situation creating a DILEMMA for her, thinking that she has to choose between following the instructions in the will(morally right but not legally enforceable) or keeping the money( Legally correct but morally wrong).

Though this has no LEGAL bearing, we are all decent people who want to do what's right.We don't HATE one another...there are some resentments/touchy spots(we're human!),and I see no understandable reason why my sister would wilfully take advantage this error in Mom's will,though I'm sure other members here will endeavor to enlighten me LOL!
I guess I should have kept my mouth shut and let the life insurance money be LEFT where it was placed(in the estate) even though that was an erroneous action on the part of the beneficiary/PR. I honestly feared that this could create unnecessary additional taxes,and wanted to see it distributed, believing that it would be a real help to the youngest sis who gave up her job to care for Mom.
Ah well, live and learn, i guess.
Cindy O