Should mother declare bankruptcy over mounting credit card debt?

Dear Len & Rosie,

My mother is 75 years old and receives SSI. She has somehow managed to incur $15,000 of credit card debt. Every time she received something in the mail offering her a good deal she’d sign the pre-approved application and a few weeks later she’d have another credit card. I finally put a stop to this when I got involved in her finances. My mother owns nothing except for two insurance policies worth $10,000. Should she declare bankruptcy? Can bill collectors demand payment from mom’s insurance money after her death?

Andrea

Dear Andrea,

Your mother can declare bankruptcy if she wants to, but it isn’t really necessary. She owns next to nothing. Since she is on Supplemental Security Income (SSI) from Social Security, the total value of her countable assets has to be less than $2,000. Her life insurance policies are certainly term life policies with no cash surrender value, otherwise she wouldn’t be eligible. Since SSI payments are exempt from attachment, your mother is judgment proof, if only because the consumer lending industry hasn’t yet figured out how to squeeze blood from a turnip.

If your mother’s insurance policies do not nameher children as beneficiaries, then she should change that now. She gets Medi-Cal benefits automatically because she collects SSI. Upon her death, the California Department of Health Care Services will assert a claim against anything she owns in her estate that isn’t spent on her funeral and burial expenses. If the insurance pays into her estate, it will be subject to the Medi-Cal reimbursement claim, and anything left after that will wind up going to your mother’s creditors. You would wind up with nothing for yourself.

If you are the beneficiary of your mother’s life insurance policies, then the money will pass directly to you upon her death. Since the insurance money will not be part of her probate estate, it will not be subject to the claims of her creditors. You will not have to reimburse Medi-Cal either.

You are not legally obligated to pay your mother’s debts, but this will not prevent her creditors from asking you to pay them off after your mother’s death. If they do, mail them a photocopy of your mother’s death certificate with a note telling them that your mother died with no assets and that she was on SSI and Medi-Cal. That should take care of it. If they continue to ask you for money, give them nothing.

Len & Rosie

Challenges of blended families

Dear Len & Rosie,

Can I leave my property to my adult son and leave out my husband? Could my husband change this after my death? I am afraid that if I leave it to my husband he will disinherit my son and give everything to his children.

Becky

Dear Becky,

You are dealing with a problem common in "blended" families; second marriages with one or both spouses having children from prior relationships. On one hand, you and your husband are likely to want to provide for one another, especially if you have been married for a very long time. On the other hand, you don't want to look down from heaven to see your step-daughter driving a Lexus you aid for while your son gets nothing.

There are several ways to accomplishing your goal of protecting your son's inheritance. You can create your own estate plan, either a will or a trust, that leaves all of your assets, or a portion of them, directly to your son upon your death, whether or not your husband is still alive. You can even leave your son your half of the community property. If you decide to do this, it is important that you understand that everything you own in joint tenancy or in community property with right of survivorship with your husband will go to him if you die first. If you have any jointly held property, you need to transfer your half to your trust, or you need to sever the joint tenancies so your half will pass through probate to your son under the terms of your will.

If you want to provide for your husband too, your estate plan can hold your assets in trust for the benefit of your husband for his lifetime, passing them on to your son only upon your husband's death. Your son can be the trustee of this trust, which will put him in a good position to protect his inheritance after your death.`

Another alternative is for you and your husband to enter into a binding agreement about how all of your assets, and his, will be divided upon your deaths. You can make a "contract to devise property" under which you promise to leave everything to one another, and also promise to leave half to his children and half to your son upon the death of the survivor between you.

Keep in mind that if you create your own trust and put your assets into it, chances are your husband is going to find out. Do not try to keep this a secret. We have seen couples divorce because one spouse transferred her half of the property into a trust of her own. For this reason, you maybe better off if you discuss your concerns with your husband and agree to create an estate plan that works for your entire family.

Len & Rosie