Trudy Nearn is the founding attorney of Generations, an estate planning law firm in Sacramento. For the last 25 years, her focus has been in estate planning, trust and probate law.
Q: My boyfriend and I just bought a house together (he contributed half of the downpayent), however, the house is only in my name because I had the better credit and needed the tax write off. My concern is if I die, I want the house to be paid off and go to him. I have a $250K life insurance which would more that cover it, but my daughter is the beneficiary and I understand I can't "designate" a portion of it to him to pay off the house. What do you suggest to ensure he will be covered should something happen to me?
Submitted by Lisa from Sacramento, CA
A: Lisa, your issues can be addressed in lots of different ways. Probably the best way will be to have a written agreement with your boyfriend that addresses all of the possibilities - what if you die, what if he dies, what if you two break up, what if you sell the house, etc. You can have a living trust own the house and own your life insurance, and the trust can be the beneficiary of the life insurance. The trust can take care of the things that you agree to do in the written agreement with your boyfriend. Don't try to write the agreement or the trust yourselves. You might forget to address an issue, or address it in a way that is not clear. It will be more expensive to fix it or fight about it later than it would be to have an attorney draft it properly in the first place.
Why couldn't the woman designate part of her insurance benefit to her friend and some to her daughter?
Can you use a LI plan sort of like a will where you give so many dollars to X an a few to Y and maybe the rest to Z?
I always thought you could do it by absolute dollars or by a percentage... but maybe I'm wrong (which would not be first time here... but asking dumb questions is how you learn!)
I would have to say, partly bad advice. Trust me, the insurance company ain't going to give a crap about the living trust if they have a beneficiary designation on file.
You can designate whatever (trust) or whomever as a beneficiary on a policy, according to whatever the insurance company will allow (whole, partial percentages, etc.) There are additional issues, though, with minor children.
Yes you can direct different portions of the insurance benefit to go to two or more people. The trust and/or the will doesn't affect it.
But the question is worded poorly. You are not using insurance "like" a will. The will directs things that pass through the estate.
Life insurance never goes through the estate as long as there is a living beneficiary named. It is unaffected by a will or a trust if it is not directed to pass through them or is not owned by the trust.
However that only addresses the death money problem. They need an agreement that spells out the more likely event of him paying on this house for 15 years and then divorcing her. Or if she died and he got the insurance to pay off the house BUT the house has appreciated and the kids boot him and his insurance money out and sell it for much more money.
That's where they need the attorney and a proper will and possibly a trust set up.
Life insurance proceeds can be counted in the estate for purposes of estate or inheritance taxes if the policy is owned outright by the decedent and the estate, including the life insurance proceeds, are sufficient to be considered taxable.
The beneficiary can be anyone who has an insurable interest in the policy proceeds at the time the beneficiary is named.
If the named beneficiary is not living at the time the policy holder dies, the proceeds are payable to the estate and can then be distributed according to any will, trust or laws of intestacy.
Of course buying a house jointly with a boyfriend is an incredibly stupid idea.
.....Of course buying a house jointly with a boyfriend is an incredibly stupid idea.
I agree! Technically, she has bought a house and the boyfriend has no legal interest in the thing as things currently stand. He can walk off and leave her stuck with the mortgage or she could die and it passes to her heirs. She needs some legal advice not a newspaper column.
You can designate whatever (trust) or whomever as a beneficiary on a policy, according to whatever the insurance company will allow (whole, partial percentages, etc.)
Maybe this woman had a policy that only allowed a single beneficiary? Has anyone ever run into a plan like that? I haven't... but my experience is limited compared to most of you out there.
We dont know what she means when she says the "house is just in my name." Does that mean that they are living together and she has title to the house and he helped with the down payment but title is in her name. Or does it mean that they both have title but the mortgage is only in her name? And even if they both have title is that as joint tenancy or as tenants in common. In other words if she dies does her half automatically go to him or to her heirs instead. Be good to think about that in advance.
If she has title and the mortgage is in her name and he just just chipped in then just leaving him money to pay off the mortgage does not automatically get him the house. If the house passes to the daughter or to the larger estate if she goes without a will then they may not choose to sell it to him. Without cleaning all of that up, he is simply paying off someone elses mortgage if he recieves a death benefit.
I realize that he may be paying monthly in addition to the down payment but she didnt say that and even if he is that does not establish title only that he is renting.
Winter
------------------------------------ The Bolsheviks are dining in the capital.
The names on the title and the ones on the loan don't have to match. She could have title but both are on the loan. Or they both could have title and both be on the loan. Or . . . .
Xrac is right. She needs good advice which is not necessarily what she got from the newspaper.
Maybe this woman had a policy that only allowed a single beneficiary? Has anyone ever run into a plan like that? I haven't... but my experience is limited compared to most of you out there.
Al
Nope, that's not like an insurance company. They don't care. If we were talking custodian, though, different story (like a retirement account).
Why couldn't the woman designate part of her insurance benefit to her friend and some to her daughter?
Can you use a LI plan sort of like a will where you give so many dollars to X an a few to Y and maybe the rest to Z?
I always thought you could do it by absolute dollars or by a percentage... but maybe I'm wrong (which would not be first time here... but asking dumb questions is how you learn!)
Al
She can designate the beneficiary (ies) any way that she wants, but that does nothing to solve this problem. She can do 50/50 or any way she want the proceeds paid.
First, the house is in her name only, and since they are not married, he has NO legal interest in it. No community property, does not matter if he makes all of the mortgage payments, he has no interest legally. It is solely her asset. On the other side, he has no liability in the event she dies. He can walk away and her estate would have to deal with the house. Worse, since he has no liability, if she re-designates him as partial beneficiary, he can take the money and walk away, leaving her hiers to deal with a mortgage and having to sell this house.
They need to see an attorney and create some documents regarding distribution of assets, responsibilities and so on.
If they were married, in CA estate goes to the surviving spouse who has community property responsibilities so he would be responsible for the mortgage (even if he is not on the loan) and would obtain the house. But they are not married so neither is currently protected, and giving life insurance proceeds would not necessarily solve the problem.
The names on the title and the ones on the loan don't have to match. She could have title but both are on the loan. Or they both could have title and both be on the loan. Or . . . .
Right, that was my point because all of the various configurations have different implications. What is meant by "my boyfriend and I bought a house together." If he kicked in for the down payment and she has title and she has the mortgage because her credit is better, what makes her think that the boyfriend gets the house just because she leaves him money to pay off the mortgage to her house. In the absence of a will it will go to her relatives and for them to settle with the mortgage holder though assumption or liquidation.
Can you use LI like a will?
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