Lynn Brenner's Family Finance

Death Doen't Automatically Wipe Out Debts

Q: My late uncle was in a nursing home in New York State for about a year. They were applying for Medicaid, but he died before they finalized the Medicaid process. He left many bills, and a residence valued at about $40,000. He also left a bank account with about $30,000 in trust for me. Is that money mine, or will the nursing home or Medicaid come looking for it?

 

A: Medicaid isn’t one of your uncle’s creditors if the Medicaid application process was never completed. But everyone else he owed money to – including the nursing home -- definitely has a claim on his estate.

Your uncle's estate must pay his outstanding bills before any assets are distributed to his heirs. 

To be sure, New York law does make some assets off limits to most creditors: They can’t touch the proceeds of life insurance policies, or collect from annuities or retirement accounts that have designated beneficiaries. If your uncle had named you as his IRA beneficiary, you could be confident of inheriting that account. 

But a bank ‘in trust for’ account isn’t on the list of protected assets. Your uncle’s creditors have first dibs on it. Depending on how much he owed that nursing home, there may be nothing left for you.

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved

My Husband's Ex Is Still His Named Beneficiary!

Q: My husband of seven years told me that he added me as his beneficiary after we were married. But I've learned that his ex-wife is still listed as his beneficiary. Can this be changed, and if so, can it be back-dated from the date of our marriage license?

 

A: Beneficiary designations never have to be back-dated. The only beneficiary that matters is the one listed on the account when its owner dies.  And yes, of course he can change his beneficiary designation to name his current spouse!

You don’t say what kind of account this is. If it’s an Individual Retirement Account, he can name any beneficiary he wants unless you live in a community property state. (However,  if you live in a community property state, as his current wife you may already own half of his IRA.) 

If you’re talking about an account in an employer-sponsored retirement plan, such as a 401(k), as his current spouse you're entitled by federal law to be his beneficiary. He can't name anyone else unless you relinquish that entitlement in a written statement kept by the plan administrator. (More about that here.)

But it's up to your husband to update his 401(k) beneficiary designations. Given his track record on completing this task, you may want to drop a note to the 401(k) plan administrator asking them to make sure he changes his 401(k) paperwork to reflect the fact that you are the current Mrs. Jones.

For more information about the legal nightmare created for their heirs by people who divorce and remarry without updating their 401(k) beneficiary designations, see my earlier posts here and here.) 

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved