Q: I have life insurance by my employer. Can state or federal debt owed by a beneficiary cause the payout to be reduced?
I live in Florida. The beneficiary of my life insurance policy owes back child support for an adult child. The beneficiary's check is already being garnished for the monthly amount. I am just not sure if they would take what is owed in a lump sum from the life insurance proceeds.
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A: It would be uncommon for any creditor of a life insurance beneficiary to garnish life insurance proceeds before they are paid out, though it is theoretically possible. More likely, after the funds are deposited into the beneficiary's bank account, the creditor will garnish the bank account. You can protect life insurance proceeds from being wiped out by a beneficiary's creditors by changing the death beneficiary a spendthrift-type trust. You should hire an experienced estate planning attorney to help you with this. This is not a do-it-yourself project.
Phillip William Gunthert agrees with this answer
A: If life insurance is paid out to the debtor it is likely that those monies will be garnished or otherwise pursued and taken. An alternative would be for the monies to go into a Trust where a Trustee controls the monies and their distributions and limits how, when, where, how much and so forth is distributed. That said, overcoming child support pays that are due and owed is a difficult burden and you likely should speak with a family law attorney on the specifics.
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