Q: My parents created a revocable trust, and apparently they purchased life insurance that was to pay into the revocable trust upon their death. My parents are dead and the lawyer and anyone else who knew anything about the transaction is dead. We are trying to get money from the revocable trust and the insurance company, but they are giving us a hard time. What can we do?
A: Since the insurance policy pays to the trust, then the asset belongs to the trust and the executors of the estate are not the ones to be able to access the trust to get those funds. It must be the trustees or successor trustees who access the trust account and can make claim to the life insurance policy. You will have to somehow show who the trustee is. You need to have some form of paperwork that can be submitted to the company to make claim for the proceeds.
The above situation is an example of why wills can be a better method of passing property than a trust. If there is a trust and if the trustees are all deceased, then there is no trustee to make claim or to operate the trust. The only recourse then would be for someone, a beneficiary, to go to court and have a court order that there be cooperation between the beneficiary and the trustee for the payment of proceeds. If the matter were taken care of through the use of a will, and if there is a failure of the named executors to survive, and no one is named as an executor, then the state law provides a method of selecting the next executor. The selection process in state law goes through about seven levels of possible executors. The problem of whether to use a trust or will does not arise until there are a series of deaths and the lack of someone to administer the estate becomes apparent long after a cure can be made by the initial creators of the trust or will.
Q: My parents died and they had a mutual fund. The mutual fund is not cooperating with the executors or beneficiaries in paying out the money from the account. What do we do?
A: Obviously, the first thing is to try to work with the mutual fund through the executors to provide the mutual fund with the needed court-supported evidence that the executors are the executors and they are entitled to receive the funds from the mutual fund after the death of the parents. An ultimate method of dealing with the situation is to file a petition with the local court requesting that the funds be turned over to the executors. Notice is given to the mutual fund and if they fail to respond, then the court issues an order to the mutual fund to turn the funds over to the executors. If the mutual fund does respond, then the matter can often be worked out in front of a judge who can then make the appropriate type of order.
Q: My parents bought an annuity toward the end of their lifetimes thinking that it would provide a stream of income for them. They are now dead and the question is whether the annuity is subject to inheritance tax.
A: Yes, and it is subject to inheritance tax. An annuity is not life insurance and thus it is taxable. If it were life insurance it would not be taxable for inheritance tax. The only times that an annuity is not taxable at death is if the annuity ends with the owner’s death so that nothing passes to another party, or the annuity is part of a pension plan and pays out to someone less than 59 1/2 years old. There are special rules as to this type of annuity and pension plan.
Sometimes annuities are sold and the buyer is told that they are not subject to inheritance tax, and a general rule would be that is absolutely incorrect. In Pennsylvania, it is better to think that everything is subject to inheritance tax unless an item is specifically excluded by state law, and almost nothing is excluded by state law.
James M. Rayback is a practicing lawyer with the State College firm James M. Rayback Inc.