Life Insurance and Probate
When a Life Insurance Policy Must Go Through Probate
A beneficiary must be named with the insurance company for the life insurance policy to be paid out. Unlike other types of assets, such as real estate or the money in a bank account, a will alone will not suffice when it comes to life insurance. The beneficiary must be named with the life insurance company, not just in the will. So, if the policy holder remarried or changed their mind about who they want to inherit their life insurance policy, they must contact their insurance company first. Similarly, a life insurance policy will go through probate when the beneficiary that was named in the insurance policy is no longer living. When a loved one dies, obviously the first thing that the survivor needs or wants to do has nothing to do with calling up their life insurance company, but it is something that eventually needs to be handled, because when a life insurance policy goes through probate, court fees are subtracted from the amount in the policy. These fees can be quite large, and the entire probate process can be avoided with some careful planning and forethought. Some important questions to ask yourself regarding your life insurance policy include the following:
- If you have changed who your beneficiaries are in your will recently, did you remember to make any necessary changes with the beneficiary listed in your life insurance policy?
- Is the beneficiary of your life insurance policy still living?
- Have you reviewed your life insurance policy after a recent major life event, such as a marriage, divorce, death, or birth?
How Large Life Insurance Policies Increase Your Chances of Being Taxed
Sixty-two percent of Americans report having life insurance, according to LIMRA’s Life Insurance Barometer Study of 2013. The policyholder and beneficiary may not have to pay taxes in the form of dividends, interest, or capital gains until the proceeds are withdrawn, according to Investopedia, but large taxation may occur if the policyholder’s estate is taxed. The average life insurance policy is generally between half a million and one million dollars, which can significantly add on to your taxable estate.
Call Maryland Estate Planning Attorney Tara K. Frame Today
As you may know, probate, which is the process of proving a will in court, can be a complicated, expensive, and time-consuming endeavor, especially if the probate administrator makes errors or is otherwise unprepared or inexperienced for the task at hand. A probate administration attorney can smooth the process for all involved, and help the administrator avoid problems and navigate obstacles. One such obstacle could be life insurance. Usually, life insurance does not go through probate, but there are of course a few exceptions to this rule as discussed earlier. Call a Pasadena attorney with Frame & Frame today to begin planning, or to provide assistance during probate.