When someone passes away, their estate goes to probate. Families who are aware that a loved one has a life insurance policy may be curious as to which category it belongs under since not all property is subject to probate. Probate adds stress to an already challenging situation. It leads to a lengthier waiting period before you receive the payout, a greater chance of receiving considerably less money than anticipated, and a higher chance of family disputes over distributions.
The legal procedure known as "probate" authorizes a court to formally verify the deceased's will as well as appoint an executor to distribute the estate's assets. When the court issues a formal document closing the probate, the procedure is complete.
If a person passes away intestate—that is, without a will—the court appoints an administrator to handle the deceased's assets in line with state law.
Life insurance coverages are generally non-probate assets. They are not subject to the probate procedure. However, there are a few situations in which an insurance company would give the life insurance payout to the estate.
Because it is not a component of the estate of the dead, a life insurance policy with a named beneficiary that outlives the insured will not be subject to probate. Instead, the recipient receives the death benefit directly.
The insurance provider is required by law to pay the named beneficiary of a life insurance policy. The will cannot specify who receives this money because it is not a part of the deceased's estate. The insurer can determine who receives the death benefit either when they are purchasing the life insurance coverage or after submitting a form provided by the insurance company to change the beneficiary. Life insurance profits are not accessible to creditors since they bypass the estate. As a result, the beneficiaries are not required to pay the deceased's debts with the payout.
However, this rule has the following exceptions:
If the insured's estate is designated as the beneficiary of a life insurance policy, the payout from the policy is subject to probate along with any other assets. Taxes and other debts are settled before the money is given to the will's designated beneficiaries or the deceased person's close relatives.
People are urged to include numerous primary or conditional beneficiaries when applying for life insurance. Benefits go to conditional beneficiaries instead of going through probate court if a primary beneficiary passes away before the insured.
There are two ways life insurance money may be handled if both the primary and contingent beneficiaries are dead:
- The life insurance proceeds will pass through the probate process and become a component of the decedent's estate.
- According to the state's intestacy laws, the death benefit will be distributed to the deceased's living successors.
The life insurance proceeds will be handled in the same manner as if all specified beneficiaries have passed away if the insured neglects to submit a beneficiary designation form.
Unless specific preventative steps, such as setting up a custodial account or appointing a guardian, are put in place, children cannot acquire legal ownership of the death benefit.
Some states have rules that declare an ex-spouse ineligible for life insurance following a divorce.
Life Insurance Lawyer contests the beneficiary
Our life insurance attorneys can contest any beneficiary