Since I have to use all of my husband's social security to cover his daycare expenses, I'm on a strict budget and barely making ends meet. I'm considering selling ownership of my husband's life insurance policy to my brother-in-law. He will continue to pay the premiums and keep me as beneficary. The money will be used to pay off my car and other debits in order to free up more cash for me to live on. I will pay him back upon collection of the benefits. Has anyone ever done this before and/or can anybody offer advice on this subject?
If your husband has a whole life insurance policy, you could borrow against the policy yourself, and it would pay you the difference between the loan and the benefit amount upon his death.
I know nothing about the legalities in selling ownership, whether it is legal, and what proof you would have that he would keep you as beneficiary.
Would he be willing to just loan you the money with you paying him back upon your receiving the benefits?
1) If you transfer ownership from yourself to any one else, that is a gift to them. Any cash value over $13,000 he would have to pay income tax on.
2) Once you transfer ownership, he can change the beneficiary to himself. And you may think you know him and trust him, but I am here to tell you, you never know anyone until there's money involved.
Frankly, I can not imagine why he would do that unless he planned on making himself the beneficiary.
I think it would be better if he loaned you the money, with the life insurance policy as collateral. With all the terms in black and white.
you know your BIL better than any of us but when money is involved it can get very complicated once your DH passes. like the others said there is no guarantee of you remaining beneficiary once the changes are made and he is in control. i do know you can borrow against the policy if it has some cash value but you have to make repays on the loan or it eats away at the value of the policy and can add hefty interest rates on top of the loan. if you chose to go thru with it, go to an atty and make sure its all spelled out in black and white and let the atty offer input on how to best accomplish your needs. if not done properly you could put your interests in the policy at risk so protect yourself by having it done by a professional. divvi
It sounds like a win win. It just depends how much he is will to pay for it. 50 cents on the dollar or more I think might be fair. With those funds you get now you can pay off your debt and be in a better position. He know that he is purchasing something of value in that your husband has a terminal illness. He is also taking the risk that the insurance company will file for bankruptcy which today might be possible thou unlikely. If I was him I would give you the money up front on the condition you made him the beneficiary or 50% beneficiary. Put everything in writing with all possible out comes. He divorces your daughter and takes off to Mexico with a new babe.
Patt K What reason are you wanting to transfer ownership???? if you are to remain the beneficiary then Your BIL would have no funds from the policy except the cash value and if he took that then of course you would not receive as much as beneficiary?? I see no benefit to this at all. What is your reason. Why would your BIL want to owe a policy that YOU are the beneficiary on????
Mary 22033, For what its worth, a gift is not taxed as income it is a gift tax that has to be paid and the giver is the one who owes the tax not the person who receives the gift.
This whole conversation about life insurance came up with my BIL when we thought I was going to have to put my husband in a NH and apply for medicaid. I learned that eventhough I thought my DH had no assets, his Whole Life policy is considered an asset and medicaid has a right to recover up to 50% of it upon his death. However, if he was not the owner of the policy that wouldn't be true. Seems it doeasn't matter who is the insured or the beneficiary but what matters is who owns the policy. This has prompted many folks who needed immediate cash to sell there policy and investors were willing to buy @ perhaps half the face value hoping the insured would die very soon and they could quickly recover thier investment plus the additional cash. Sort of a morbid way to make money but does work for many. Especially where the insured has a terminal illness. Anyway, got me to thinking that not only would I be able to raise some cash to pay debits off but still be able to retain 100% of the benefits if my BIL agreed. I have total faith and trust in him. He is an honorable man who loves his brother (my DH) dearly and only has our best interests at heart. So, seems like this may be the right course for me to take. Obviously, I would need legal counsel before setting everything in motion but,yes, I do know that you can legally sell ownership of your policy. If you sell it in exchange for cash, how can it then be considered a gift?
I would make sure you have a qualified tax accountant review the transaction before making it.
If BIL is paying you the full cash value at the time of transfer, then it wouldn't be a gift. But if the amount he pays you is any less than full cash value - that part would be a gift.
If you sell it for full cash value, I don't know if you would be subject to a capital gains tax on any investment income (cash value less what you've paid in).
I'm no expert. I just know the government wants a large part of any transaction - they're going to get you one way or another...
Mary 22033 is correct in that if you sell the policy for less than the cash value the excess would be taxed under the GIFT TAX law, not under the Federal Income Tax law, However having said that it does seem to be that the reason you are wanting to sale the policy to your BIL is in the event you apply for Medicaid for your DH. WELL, Let me tell you this, selling the policy to your BIL would be considered a transfer of assets unless he gives you the FULL cash value of the policy, and that would defeat your purpose because the cash you receive would be considered countable assets until you spend it down which in your case you plan to do.
It would make more sense for you to have the Policy converted to YOU as the owner as far as Medicaid goes. They would still only count the cash value of the policy, you would not have to worry about anyone changing the beneficiary, or giving anyone anything. What you are purposing makes no sense at all.