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Inheritance during Chapter 13

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    Question Inheritance during Chapter 13

    Hi, my father has some serious health issues and so our bk attorney suggested we ask my dad to modify his will such that anything my wife and I were going to inherit would instead go to our children. We've done something similar with our life insurance - kids are primary beneficiaries now instead of my wife and I for each other. FYI, I'm also dad's executor.

    My dad discussed it with his attorney and after doing so, was told he does not need to change anything. So he is not going to. Period.

    We are in the middle of C13 having just started our 3rd year this past April (woot!).

    My dad does not have some vast fortune. He has his house (with a mortgage), household possessions, little savings and a small apartment in another state he rents out.

    Were he to pass, we'd sell the house and split that with my sister along with the household stuff. We'd prefer to keep the rental apartment if possible.

    Q- would the trustee take everything? I keep reading about this 180 day rule (and we are well, well past 180 days) and some articles say if we inherit after 180 days of filing, we can keep everything. Others say the trustee is going to come for it regardless of 180 days.

    And dad, as noted, is NOT going to change his will. So what is going to happen vis-a-vis C13 were he to pass and what can we do w/o changing the will to best prepare for it. I especially do not want to lose family mementos/keepsakes, some of which may have small (< $1K) values.

    Thanks!

    #2
    Estate planning is very important and I wish that more people did this. I think it was a good conversation that you had with your father. Here is my $0.02 ...

    Originally posted by AndHereWeAre View Post
    Q- would the trustee take everything? I keep reading about this 180 day rule (and we are well, well past 180 days) and some articles say if we inherit after 180 days of filing, we can keep everything. Others say the trustee is going to come for it regardless of 180 days.
    This is a two-part answer.

    First, we must talk about the 180-day rule. The 180 days rules is best summarized as, anything that you would inherit, or were entitled to inherit within 180 days of filing the bankruptcy, are subject to being part of the bankruptcy estate. Exemptions can protect some or all of these inheritances (and marital property settlements) based on available exemptions at the State and Federal level. Suffice it to say that the inheritance is exposed.

    Second, the 180-day rule gets muddy for Chapter 13s. The first rule, discussed above, exists and is the general rule even for Chapter 13s. If you become entitled to the inheritance within 180-days of filing, the general rule applies. However, what happens if there is an inheritance after 180-days of filing? The same rule may apply. You may need to appease the Chapter 13 Trustee and pay in some or all of the inheritance into the Chapter 13 to satisfy the (hungry) unsecured creditors.

    Originally posted by AndHereWeAre View Post
    And dad, as noted, is NOT going to change his will. So what is going to happen vis-a-vis C13 were he to pass and what can we do w/o changing the will to best prepare for it. I especially do not want to lose family mementos/keepsakes, some of which may have small (< $1K) values.
    See my answer above. We think of a Chapter 13 as a "pending" bankruptcy as it is held open much longer than a Chapter 7 liquidation. During that pendency, things can happen and how different Chapter 13 Trustees, districts, and States deal with this so-called "windfall" rule can be challenging. Your siblings, of course, can buy any portion of the estate from the Chapter 13 Trustee. (The Chapter 13 Trustee would actually like this, because it's an easy "liquidation" of sorts.) You could also offer to pay your part of the Estate into the Chapter 13.

    I would just go back to my attorney and say that my dad is stubborn and I don't think we can prevent any potential issues related to an inheritance. Perhaps the attorney can find some exemptions to protect all or some of any potential inheritance.

    I hope that your dad survives your Chapter 13 if not only so that you have more time with him. I hope that he is not in any pain.
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog

    Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.

    Comment


      #3
      I am sorry to hear of your dilemma. I hope your Dad's health holds up for his/family's sake as well as to avoid the mess that will follow if he passes before BK is completed. It's a shame the conversation with his lawyer didn't go well. Is your sister involved? Because the aftermath of his death would effect her as well. If she will have to buy from the trustee or buy your share of the apartment to keep it in the family.

      Are there keepsakes/mementos your dad would be willing to part with now? I am assuming they hold sentimental value and you wouldn't dream of selling them. Maybe he can gift them to you/your wife say something for your b/day or Christmas. *if this is kosher, they are small items financially under 1K* I doubt he would go for that since he didn't see the need for changing his will. Makes me wonder did he understand that his money will go to the trustee not to you or your family and that your sister will have headaches if she wishes to keep some things the trustee might be interested in?

      If he feels the inheritance should pay your bills and not be a bonus to you that's one thing, but with property and a sibling involved it gets more complicated. Maybe he doesn't feel like he's going to pass in the next 2 yrs. Many people don't want to think about death and do not plan in the best manner.
      I am not an expert. I just share my experiences in the Wonderful Wacky World of Chapter 13!

      Comment

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