Legal Question in Insurance Law in New York

Re: Life Insurance Policy

Under New York law, your father had an "insurable interest" in your brother's life. No, a bloke can't walk in off the street and obtain life insurance on someone, but that's not what happened here. Obviously, step mom and step sister are real nice pieces of work, but one would have to know why your father did not leave a will bequeathing the insurance policy to your brother. There does not appear to be a solution unless the estate plan is open to attack. Another question that arises is how long ago was the policy purchased, and whether the estate paid estate tax on the cash value of the policy. If so, then the proceeds of the life insurance will be ordinary income to your steps. Therein lies some leverage, though it's not much leverage until your brother becomes deceased. The trick would be to let the steps think that the life insurance is excluded from income. It normally is, but since it sounds like stepmom did not adopt your brother, he's not a relative, and the exclusion is inapplicable.

There are several ways to approach this. One would be to notify the insurance company that the policy is not exempt and therefore they must not pay the policy upon decease absent the consent of the IRS and NYS Tax Commission. The other is to wait until the policy becomes payable, let the steps treat it as exempt, and then report the tax evasion to the IRS and give the 10% commission to your nieces&nephews. Small comfort, but the penalty for taking a false exclusion is to double the tax, so it could be a substantial recovery.

Sorry your not-family are such nice people. What goes around, comes around. Time wounds all heels.