Are Life Insurance Proceeds Assets in Probate? (2024)

FAQs

Are Life Insurance Proceeds Assets in Probate? ›

Generally, no. Most of the time, life insurance proceeds pass outside of probate. Only “probate assets” become part of a probate estate that must be distributed to a decedent's beneficiaries or heirs by opening a probate proceeding with the court.

Unlike other assets subject to probate – such as real estate – life insurance proceeds are typically considered non-probate assets.

Unless payable to your own estate, death benefits payable under your life insurance policies are NOT estate assets, which means they do not go according to your Will and which sometimes means they go to the “wrong people.” Money paid out on your life insurance policy when you die is not “your” money.

First and foremost, there are a number of asset types that typically do not pass through probate. This includes life insurance policies, bank accounts, and investment or retirement accounts that require you to name a beneficiary.

The death benefit of a life insurance policy is not considered an asset, but some policies have a cash value, which is considered an asset. Only permanent life insurance policies, like whole life, can grow cash value.

In most cases, creditors cannot garnish your life insurance proceeds to cover your outstanding debt after you die.

If you receive life insurance proceeds payable directly to you, you don't have to use them to pay your parent's debts. As the named beneficiary on a life insurance policy, that money is yours to use.

An estate asset is property that was owned by the deceased at the time of death. Examples include bank accounts, investments, retirement savings, real estate, artwork, jewellery, a business, a corporation, household furnishings, vehicles, computers, smartphones, and any debts owed to the deceased.

Retirement accounts typically sidestep probate proceedings in California. This is primarily because they function as transfer-upon-death instruments. The crucial step here is to designate beneficiaries correctly for your retirement accounts, ensuring they receive the assets as you intended.

When a person dies, creditors can hold their estate and/or trust responsible for paying their outstanding debts. Similarly, creditors may be able to collect payment for the outstanding debts of beneficiaries from the distributions they receive from the trustee or executor/administrator.

Which of the following assets are non-probate assets? ›

Examples of non-probate assets are: jointly-owned property (car, home, bank accounts, etc.), 401(k)s, life insurance, Transfer on Death accounts, and life estate properties. Understanding what assets of yours constitute probate and non-probate assets is critical when structuring your estate plan.

Probate assets include: Real estate, vehicles, and other titled assets owned solely by the deceased person or as a tenant in common with someone else. Tenants in common don't have survivorship rights. The owners can bequeath their share of the property to someone else.

Life insurance proceeds usually bypass the estate and go directly to named beneficiaries, but if there are no beneficiaries, the proceeds may become part of the estate assets.

An insurance trust can be an easy way to shelter the insurance proceeds from eventual estate taxes and prevent those proceeds from pushing your spouse's estate value over the estate tax exemption threshold.

If it was the beneficiary, then any remaining primary beneficiaries or the contingent beneficiaries will claim the payout. If the insured passes first, then the beneficiary's heirs or estate will receive the death benefit.

If your life insurance policy lacks a beneficiary, it will become a part of your estate when you die. When this happens, the death benefit is subject to certain estate taxes and fees and may be used to pay off debts before being distributed to your heirs.

And the third person involved in the insurance policy is the beneficiary. That's the person, sometimes an entity like a corporation or a partnership or a trust, that's entitled to receive the death proceeds of the policy at the death of the insured.

Upon your death, unsecured debts such as credit card debt, personal loans and medical debt are typically discharged or covered by the estate. They don't pass to surviving family members. Federal student loans and most Parent PLUS loans are also discharged upon the borrower's death.

After the insured passes away the whole life insurance death benefit is distributed to beneficiaries, but any excess cash value may be retained by the insurance company.

When life insurance proceeds are used to pay inheritance taxes and federal estate taxes it is known as estate conservation.