Question

allotted time: 75 minutes
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12 saurav is the sole proprietor of a firm and his business is not doing well. he has obtained several loans and is unable to repay his creditors. he owns a life insurance policy with a cash surrender value of 120,000 with no named beneficiary. he names his son as the revocable beneficiary of the policy before declaring bankruptcy in an attempt to hinder creditors. which of the following is true with regard to this situation?
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a. the policy’s designation will be challenged as saurav assigned a beneficiary in an attempt to deter creditors.
b. the policy will be protected against creditor claims as saurav designated a beneficiary before declaring bankruptcy.
c. the policy will be protected against creditor claims as saurav’s son is a protected class beneficiary.
d. the policy will be seized as saurav designates his son as a revocable beneficiary. only an irrevocable beneficiary designation offers protection from seizure.
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Explanation:

To solve this, we analyze each option:

• Option a: Saurav named the beneficiary (his son) revocably right before bankruptcy to hinder creditors. Courts can challenge such a designation as a fraudulent transfer (trying to avoid creditors).
• Option b: Just designating a beneficiary before bankruptcy doesn't automatically protect it if the intent was to defraud creditors.
• Option c: There's no "protected class beneficiary" for life insurance in this context to shield from creditor claims due to fraudulent intent.
• Option d: Revocable vs irrevocable beneficiary rules don't apply here because the key issue is the fraudulent intent of the designation, not the type of beneficiary. So the policy's designation will be challenged for the fraudulent intent.

Answer:

a. The policy's designation will be challenged as Saurav assigned a beneficiary in an attempt to deter creditors.