Montgomery County sentinel. [volume] (Rockville, Md.) 1855-1974, 1941-02-13
THE MONEY TREE

By ETHEL M. TROY

One of the most helpful of the
intrinsic values of life insurance is
its immunity from the claims of
creditors.
Quoting from a recent article by
Albert Hirst, member of the bar
of the state of New York: "Under
these laws various state statutes
previously mentioned), where life
insurance policies are carried in
favor of named beneficiaries, the
creditors of the insured may not
reach death benefits, cash surren-
der values, dividends, disability
benefits, etc. Similarly, the pay
ments receivable by beneficiaries
under optional settlements after
the death of the insured, are US
ually protected. against claims of
their creditors. Some of the
states also have express provisions
limiting the rights of creditors of
annuitants."
Mr.. Hirst goes on to point out
that there are other statutes which
allow a debtor to hold certain
property, although unable to pay
to his creditors what he justly owes
them Homestead Acts, Work
mems Compensation, damages for
wrongful death Through negli-
gence), claims for damages for in
juries Through negligence), Gov
eminent pensions, tools of trade,
home furnishings.
The right of the debtor and his
family to live is superior to the
rights of his creditors to be paid,
hence usually only ten per cent of
ones wages or salaries can be
seized.
By inserting the so called
"spendthrift" clause in trust agree
1aents, trust incomes may be kept
free from creditors.
Numerous exemptions by gift
are recognized by law.
The limitation of liability by in
cooperating ones business is a
very significant exemption.
|. With these privileges in mind it
is not surprising to find exemp-
tons allowed to the one type of
property which is usually acquired
for unselfish purposes - life in
surance.
What, then, are some of the fac
tors which have influenced legisla-
tors to enact laws exempting life
insurance from the claims of
creditors and have persuaded
courts to approve these laws and
to construe them literally in favor
of the debtor?
l. "Life insurance is the least
costly and most equitable device
yet evolved to preserve families in
wage-earning society from des-
titution." (U. S. Circuit Court of
Appeals of the Third Circuit in the
case of Commissioner VS.. Estate of
Anna M. Keller, May %, 194O).
2. If the family's life insurance
protection is destroyed, the support
Of the family will fall on taxpay-
ers or charities.
3. The law gives to the average
man the same protection another
could gain through legal or native
shrewdness.
4. The law does not prevent a
creditor from securing his claim by
assignment of the debtors policies
with his full knowledge and free
will.
5. The exemption laws protect
honest debtors, not crooks; they
are not available for the protec-
ton of those who would use frau
dulent transfers to keep their
property from the reach of their
creditors.
6. It does not keep the honest
debtor from voluntarily using life
insurance monies for the payment
Of his just debts. 1t is well known
that both cash values and death
benefits are used so daily by honest
men and women who are so consti-
tuted that they could not enjoy
their money while their creditors
so unpaid.