Is Life Insurance Part of an Estate?
Though considered an asset, life insurance is usually not part of an estate. Life insurance is often a contract between a policy holder and an insurance company that requires the insurer to pay an amount to the beneficiary upon the death of a person. This person may or may not be the policy holder, as a joint life insurance policy can cover a spouse. As such, a life insurance policy will normally flow directly to the chosen beneficiary, not through the estate. The insurer will pay out a lump sum to the beneficiary, which is called the death benefit.
As the holder of a life insurance policy, you may designate your estate as the beneficiary of the policy’s proceeds upon your death.
If you choose to name your estate as the beneficiary of your insurance policy, there are certain considerations to take into account. The estate will be responsible for paying the probate fees on the insurance policy funds which are calculated as follows: no probate fees on the first $25,000 of total assets; 0.6% on assets between $25,000 and $50,000 and 1.4% on assets over $50,000.
Some people will want to name an individual as a beneficiary of their policy so that they have immediate access to cash, while others will want to name their estate as there may be multiple beneficiaries and those beneficiaries might be receiving varying shares of the policy.
If you are considering deeming your estate as your insurance policy beneficiary, we encourage you to seek legal and financial advice prior. Not only is the state having to pay the probate fees applicable to that asset, but naming your estate as the beneficiary can place those proceeds at risk of creditors’ claims as against the estate.
Can an Estate Trustee Receive a Deceased's Life Insurance Policy?
While an estate trustee has no relationship to the life insurance policy, and therefore is not required to deal with any matters regarding the insurance company or the proceeds, an estate trustee can receive a deceased’s life insurance policy if they are named as a) the beneficiary, both as a legal and beneficial owner, or b) as a trustee of the funds on behalf of a minor beneficiary.
The estate trustee has no right to make any changes to the policy after the policyowner’s death. The only person who can legally make changes is the policyowner themselves, prior to their death. After their death, the contract is frozen and solidified.
We at CBM Lawyers are proud to offer our clients a wide range of legal services that include the handling of wills, estates, and trusts.
If you have an issue with how an estate is being administered, or how assets are being distributed, or you believe an estate trustee is attempting to receive a deceased’s life insurance proceeds, you may wish to find out, contact Janice Papp, or read more about our Estate Litigation services.
Contact us today to speak more about what this means for you and your family.
