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From the limited research that I have done, I believe that you can list Estate as beneficiary but yes once the money is distributed (if there is any left after estate is settled) then it is subject to inheritance tax. This is the reason for the direct distribution or distribution to a trust.
I am assuming that if we use trusts, then they need set up and paid now? As you can imagine I probably wouldn't get any participation in those cost from BIL!
My son is one of the grandchildren and so my wife could/would do what was requested with the trust fund for him if she got cash direct from the insurance. The other grandchild is the son of a third sibling who is deceased. No one in the family sees the little grandson ever. If that money doesn't go into a trust but instead goes direct to BIL, I am sure he will not never see any of it! Also I agree if funeral is not paid directly but instead goes to BIL then either there won't be much of a funeral!
You don't have to put anything into the trust now. The only money you need now is the money to pay the attorney to set up the trust. When your MIL dies the trustee will start the paperwork to get the benefit from the life insurance and then the trust is "funded".
I am going to read this entire thread shortly and will tell you what to do, hopefully by morning.
But, as a prefatory matter, I must tell you that just about every response you have gotten so far is wrong. I'll explain when I get a little time.
To solve this problem first you must understand that there is a legal and estate planning answer and there is a pragmatic answer. I can tell you what should be done among rational family members each with the desire to have the correct outcome. But, as you have stated quite clearly, you have a BIL who is acting either irrationally or dishonestly. Assume dishonesty, because there is no predicate for his being irrational.
So, we have a BIL acting dishonestly. He is also acting effectively. He has already gotten the insurance policy beneficiary changed against the MIL’s own wishes to his own designs.
So, again, we must assume he will be effective in maintaining this 100% allocation of the policy benefits to himself.
Now, before I tell you what to do, first I’ll tell you what would be done in a perfect world.
A trust should be established with the operative terms you have described as her wishes: (i) pay funeral expenses (ii) specific bequests to the grandchildren to be held in trust until some date in the future (I would recommend age 21 for such a small sum) and the balance distributed to your wife and her brother equally. The policy would name the trust as the sole beneficiary of insurance benefits and be funded immediately with a nominal sum and all other assets she may have such as personal property. I would suggest your wife and her brother as co-trustees requiring both in agreement for any action on behalf of the trust.
I could fill in the details, but why? It is not going to happen. What will happen is that the BIL is going to remain as the sole beneficiary of the policy unless the MIL can be convinced to change the designation of beneficiary and not tell him which I doubt. There would have to be a trust which he would have to sign or a 3rd party trustee which does not seem likely. And you should expect that he will not give your wife or your child anything. Certainly that is his objective.
How to thwart his plan?
I would like to know the state in which your MIL is going to die, but, I am going to tell you it probably won’t matter. The best that you can hope for is to attempt to impose a trust or create a constructive trust of the insurance proceeds, by getting mom to sign the following:
Dear Children:
I have made John the sole beneficiary of my life insurance policy with XYZ Company and direct that he apply for and receive the proceeds of any insurance benefits under such policy as trustee and hold them in trust for the uses and purposes hereinafter set forth.
John, from the proceeds I direct that you shall pay my funeral expenses, retain the sum of $2k for my step grandchild Joe to be given to him when he is 21 years of age, pay the sum of $4.9k to your sister, Margaret to be held by her for the benefit of her son Ron until he reaches age 21, and then divide the remaining funds equally between you and your sister. It is my intention by this letter to create a trust for the purposes set forth herein if lawful or a constructive trust if such trust declaration fails to meet the legal requirements of a trust.
Your loving mother,
The foregoing may at first be viewed as running afoul of the statute of wills in her state because it appears to be a testamentary disposition not complying with the statute of wills. But, on further analysis it looks to me more like a trust or constructive trust since the estate will never receive the proceeds and therefore not be subject to the statute of wills.
An attorney in mom’s state should consider this alternative and actually construct a letter for you to use, but to my thinking it is the only means for imposing some control over these funds without getting agreement and participation by the BIL. Once it is signed, lock it away until she dies and then promptly send a copy to the insurance company and ask that when he applies for the benefits they issue the benefit check to “John Smith, Trustee” in accordance with her wishes. I would bet they will. If they don't, at least you have the written expression of her wishes to work with.
Wow, this is very insightful! I am impressed with the replies received! Wilson you obviously put a lot of thought into this and I think you basically nailed it.
The state that she lives and will die is West Virgina.
There are a couple of other pieces of information that may change strategy slightly; Firstly, wife my tells me that yes the mother wishes to be cremated and to have a very small service and actually believes that $4100 will cover the cost based on a quote from the funeral home.
Also, MIL really wants the discussion to stop and really wants her children to get along. She doesn't want to make either one feel slighted. She would probably sign about anything right now if it would just make the issue go away. My wife would just about forget the entire money except she just can't hardly sit by and watch BIL steal the money and MIL know it and not do anything! Remember she runs all the errands, takes food, pays phone bill, picks up groceries, etc. BIL stops by once a month for 15 minutes to brag about how imprtant he is.
Ultimately I don't think MIL could reasonably leave things "as is" if my wife takes a strong stance. Don't think she could afford to cause that problem for herslef. But MIL knows my wife will take 100 times more crap and slap in the face and not abandoned her, but BIL on the other hand, well let's just say she better not mail insurance premium late!
But, BIL is not stupid and he knows this too. He has the louder mouth but ultimately MIL needs sis way more. So, it may be that he would conceed his orignal plan for all, but probably only if he thought he could get most and get it to stick. Remember there are two riders on the policy that if death is accident then pay out doubles and one other (I forget stipulation but some other double thing) that in theory could make policy worth up to 75k. The $2100 for the step grandson would be a long shot to actually happen because even though MIL thinks she wants it, this child is step son of her deceased son (wife's deceased brother) and nobody ever sees the child or even knows where he is. So what if BIL is given responsibility of a larger share of the proceeds and he is "responsible" for the funeral and for the step grandchild trust fund. And wife says she takes a lesser percent for self and our son, just to take that "extra work" off his hands. Yea, we may end up having to fork out the cash to cover a funeral, but is this ultimately less risky to us than trying to force the trust? At least we know we get something direct from insurance and the comfort of knowing BIL didn't beat us out of all the money. Yes this is assuming BIL would go for a 55/45 or 60/40 direct off the policy. Then we don't have to pay anything today to set up a trust and maybe less risk and less waves than trying to force the issue right after her death? I may be way off on this, but just a thought.
Setting up a trust costs money-attorney fees before and after the death. I imagine you would prob also have to deal with IRS to do a final trust return and prob a cpa to do that return. Sounds like that would eat up more of a limited pool of money. Trusts are much more complicated than having beneficiaries on an insurance policy be paid directly. I'd agree with the 50/50 or 10percent to funeral home and remainder 40/40 and let the adult children take care of giving to grandchildren. Otherwise, ask insurance agent how to set it up with beneficiaries as she wants them. After that's done, tell the mom to tell him she's sick of discussing it and won't anymore.
If the money is paid to an estate, it will likely require probate to gain access to the money. The only people who win that battle is the lawyers. It would be better to have the funds go to an entity be it a trust or legally obligated person (bank). Expect to pay a fee to have someone else handle the distribution. $4k for a funeral sound light to me also.
Spoke to MIL and BIL today, the BIL still insists that the only way this can be accomplished is to have it all distributed directly to him for him to divide up. He completely rejects any idea of a trust or even distribution directly from the the policy. He insists that he is the only one bonded and knows how to handle it and if my wife's name is on the policy then it will only prevent him from getting the money quickly.
Wilson- Can you explain if there is any validaty to this whatsoever? What could he possibly be thinking? Is there ANY other explanation than he wants to keep all of the money??
Spoke to MIL and BIL today, the BIL still insists that the only way this can be accomplished is to have it all distributed directly to him for him to divide up. He completely rejects any idea of a trust or even distribution directly from the the policy. He insists that he is the only one bonded and knows how to handle it and if my wife's name is on the policy then it will only prevent him from getting the money quickly.
Wilson- Can you explain if there is any validaty to this whatsoever? What could he possibly be thinking? Is there ANY other explanation than he wants to keep all of the money??
His is blowing smoke out of his rear end. There is absolutely NO reason you can't individually name each and every beneficiary on the policy and exactly how much each one will get. The kids can't get the payout until they are 18 so you WILL have to establish a trust for them--some insurance companies will hold the money in trust for the kids though so ask about that. The only reason he wants it all to go to him is so he can take all the money, period. Him being bonded has NOTHING to do with being a beneficiary on the policy. Your poor mom having to listen to all of his crap. I really feel sorry for her.
The only small truth in what he says is that having more than one beneficiary MIGHT slow down the process to get the money IF the insurance company insists that everyone has their paperwork in before they release any money but that isn't common especially if everyone is named individually.
If you do what he says plan on paying for all of the funeral on your own, never seeing a dime of that money and not having anything for the kids for college.
I would suggest that you call the company that issues the life insurance policy and ask them for a rep in your area to meet you all at your mom's house, explain the situation before hand so he or she knows what they are getting into and let THAT person explain to your brother why he can't steal your money .
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