When Life Insurance Goes Through Probate

Under most circumstances, the proceeds of the life insurance policy is paid directly to the beneficiaries. However, life insurance policies may go through probate. If they do, here is what happens.

When Beneficiaries Are No Longer Alive

It is imperative to keep your beneficiaries of your life insurance policies current. If they die, or if you have no beneficiaries, then the proceeds of the life insurance policy will have to go through probate. In addition, if the primary beneficiary is under the age of 18 at the time that the insured dies, they cannot legally take ownership of the proceeds of the policy. If that is the case, then the life insurance will have to go through probate and a guardian will have to hold and manage the money until the minor turns 18.

This May Make the Proceeds Taxable

Life insurance proceeds ordinarily do not require the payment of taxes to the federal or state governments. However, this can change if the payment must go through probate. This means that, until the probate process is finished, the proceeds will be considered part of the estate. If the estate and the amount of the policy are sizable, the life insurance settlement can push the amount of the estate over the threshold where taxes may be owed. Life insurance may be taxable if the decedent has any incidents of ownership at the time of death, and no beneficiary means that there is some ownership.

Set Up an Irrevocable Trust

Your life insurance will not go through probate if you have established an irrevocable trust. You can set up a specific trust that only holds your life insurance. However, once you create this type of trust, you will no longer be able to make changes to your beneficiaries. When you create an irrevocable trust, you are removing any incidents of ownership. Once you pass away, your beneficiary can access the proceeds immediately. Contact a probate attorney in Las Vegas for help with setting up an irrevocable trust.