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I have a car and a life insurance policy does this need to go through probate ? Who is responsible for my credit card debt?

Augusta, GA |

I have a checking account that I use to pay bills, a car with a loan and a life insurance policy with my children as benefactors

Attorney Answers 3

Posted

The insurance has a beneficiary, so that will not go through probate. The rest should be divided up according you your Will after all debts are paid. If you don't have a will, I can help.

http://www.atl-law.com/Wills.html

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Posted

Who owns your life insurance determines whether the proceeds are included for estate tax purposes. Section 2042 of the Internal Revenue Code states that the value of life insurance proceeds insuring your life are included in your gross estate if the proceeds are payable to named beneficiaries, if you possessed any incidents of ownership in the policy at the time of your death. Since the congress in its infinite stupidity ensured that the estate tax is revived in 2013, you need to contact your life insurance company and transfer ownership of the policy to the beneficiaries. It is a simple matter of filling out and signing a form. (Most policies are written with the person who is insured as the owner.)

The car can be transferred through the tag office without probate- most simply, by putting other people on the title. If money is still owed on it at the time of your death, as a practical matter, if your heirs keep the payments up, there should be no problems.

The checking account can be designated "POD"- payable upon death- to designated beneficiaries, or can be made a joint account by putting their name on the account, if they are very trustworthy.

No one would be responsible for your credit card debt, if you die intestate; but if you have a will, the creditor can come against your estate. When all you have is a car and a small checking account, often the cost and trouble of going through probate is not worth it. But if there are other assets, it is a good idea. Either way, you should have an attorney prepare an Advance Directive for Health Care ("Living Will") and a Durable Power of Attorney, so if you are incapacitated in your last days, your heirs can pay the bills and know what your wishes are.

Note, however, that if either you or any of your children ever declares bankruptcy or are sued, having your car or checking account in joint ownership would cause problems.

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7 comments

James P. Frederick

James P. Frederick

Posted

While I agree with you in general, the fact that insurance could be included in a taxable estate for estate tax purposes does not mean that the insurance is a probate asset that needs to be administered by the court. Insurance proceeds pass outside of probate to the named beneficiaries, if there are any. The proceeds would only be part of a probate estate if there is no designated beneficiary. If the insurance is significant enough to trigger estate tax concerns, then Asker needs to have a serious talk with a lawyer.

Patricia Lyda Williams

Patricia Lyda Williams

Posted

I forgot to mention that for the life insurance to not be included in the taxable estate (if any), after making the beneficiaries the owners, any future payments for the insurance (if not already paid up) must come from their accounts, and this transfer must take place at least three years before you pass away.

James P. Frederick

James P. Frederick

Posted

Yes, but there is nothing here that suggests that this is a taxable estate.

Patricia Lyda Williams

Patricia Lyda Williams

Posted

To Mr. Frederick: Yes, I was only referring to whether life insurance would be included in calculating federal estate taxes. Since from her comments it sounds like she has a very small estate, she may well fall under the 2013 estate tax exemption amount. But you never know, $1,000,000 and $2,000,000 life insurance policies are not unheard of these days.

James P. Frederick

James P. Frederick

Posted

I agree, but someone who has a $1,000,000 or $2,000,000 insurance policy is unlikely to be someone that would have any concerns about credit card debt. ;-)

Loraine M. DiSalvo

Loraine M. DiSalvo

Posted

I feel I have to add that no one should EVER add other people as joint owners on their car or their checking account. That only exposes those assets to potential debts and other problems the added people may have. Transferring title to a car after the owner's death is a pretty simple process (as long as the title hasn't been lost) whether there is a Will or not, at least in Georgia, and if you really want to avoid the need for probate the POD designation on a bank account accomplishes that without any need for adding joint owners on the account. I don't care how trustworthy someone is: you DON'T add them to your bank account as an owner. Period.

James P. Frederick

James P. Frederick

Posted

I absolutely agree with Ms. DiSalvo. You can have joint accounts with a spouse. Otherwise, that is never a good idea. There are always better options. Joint accounts are the most common "do-it-yourself estate plan." I cannot tell you how many times that has blown up into a HUGE mess. It can be a complete disaster.

Posted

It is possible to set up an estate like yours where much of it bypass probate. Whether than is a good idea depends on the amount of insurance, the amount of debt, whetehr your children are minors or not, etc. You need to spend some time with a lawyer, probably do need a will, and may need at least some simple related documents and planning. If your estate is not large, this will cost very little and save your children a lot of grief.

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