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Friday, October 30, 2015

What if the life insurance policy says pay out at age 18, but the will says pay out at 25?

Contradictory documents can cause no end of confusion and delays with an estate. How is an executor to know what to do when he seems to have two different sets of instructions? A reader recently wrote to me about a situation which has presented him with contradictory documents. His question and my comments are below:

"My brother left me as executor of his estate and trustee of his life insurance policy funds to be held until his minor children are of legal age. The insurance policy says 18 years of age; the holographic will says 25. Can I resign as trustee – they are both over 18."

These two documents may appear to be contradictory, but they aren't necessarily so. The will says that any assets of the estate that are going to the children should be held to age 18. The life insurance policy is not in the estate, therefore it is payable to the children when they turn 18. These are the general rules that apply to this kind of situation.

However, from the way you've worded your question, it may be that the will changes the terms of the policy. Wills can do that, so long as they are specific enough so that we can know exactly which policy is intended to be changed. In order to make the change, your brother's will should say that the beneficiary of the policy is now his estate. That would bring the life insurance proceeds into the estate and within the terms of the will. He could then say that his estate is to be left to his children at age 25

I suspect that because the will was holographic and therefore most likely home-made, it may not have been worded properly to bring about the desired change. Obviously I don't know that for sure since I haven't seen the will. You may wish to get a legal opinion from a local lawyer on the effectiveness of the holographic will.

As an executor, you really need to get this right, On one hand, you don't want to hold onto money for seven years if you aren't supposed to. That could get you sued by the children who are to receive the funds. However, on the other hand, if you pay  it out too early, you could also be sued. For example, if you paid it out to someone who is 18, and they pass away at age 21, whoever was supposed to get that money if the child didn't live to age 25 would have the right to come after you for the money.

If it's really unclear legally about whether the insurance company should pay to the beneficiaries directly or to the estate, you might end up asking a judge for a ruling on it. As an executor, you'd be neutral on the question and simply ask the judge to figure it out.

From the wording of your question, it appears that you were named directly on the life insurance policy as the trustee, as well as in the will (as opposed to only in the will). In terms of being named on the policy itself, as they are both over 18, there is no need for you to resign as trustee. Either the insurance company  is going to pay the kids directly, in which case you're not involved, or they are going to pay it to the estate (depending on, as I said, the wording in the will). If they pay it to the estate, you're the executor, so resigning as trustee would be pointless.

If you meet the conditions for renouncing as executor of the will, somebody else will have to look after the funds until the kids turn 25. You cannot renounce or resign if you've already worked on the estate unless a judge allows you to resign.


2 comments:

  1. Is the Holographic Will that simple? Are there other assets?
    Another good example why everyone should have a Will. I would think a good Lawyer would have caught the Life Insurance payout issue.

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    Replies
    1. My brother's holographic will is a handwritten diatribe against his ex-wife. He stipulates that the insurance money be held in trust until the boys are 25. It's been ten years, so some of the details escape me. The will was not probated and the insurance money was not made part of the estate. Both boys are over 18 now.

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