Most people leave their life insurance policies out of estate planning because they rarely have to go through the probate court. What they might not realize is that certain exceptions could land their insurance payout in probate. If you are unsure whether to include your life insurance in your estate planning, here is what you need to know.
Why Would an Insurance Payout End Up in Probate?
There are several instances in which an executor would have to include an insurance payout in the estate filing for the probate court. One possible reason is that the deceased failed to name a beneficiary on the policy. The payout would have to go through the court so that the rightful heir could be determined according to the state's laws.
In the event that a beneficiary was named but he or she died before the deceased, it would also have to go through the payout court if there was not an alternate beneficiary named.
The insurance company would still be responsible for paying out the policy. However, instead of making out the check to the estate, the court would issue the check directly to the probate court. Once the rightful heir is determined, the court will issue a check to him or her. Any fees that are owed to the court will be deducted before the check is issued.
How Can You Keep Your Insurance Payout Out of Probate?
The easiest method to ensure that your payout avoids probate is to name a beneficiary. Ideally, you should name at least two alternates who would receive the payout in the event that the primary beneficiary is unable to receive the funds.
Another possible method you could use to keep your payout from the probate court is to name a trust as the beneficiary. The funds would then be used in the way your trust outlines.
As a backup measure, include instructions regarding your insurance payout in your will. If you forget to update your beneficiary on your insurance or do not have a trust, the court can still consider your wishes if they are outlined clearly in a will. Review your state's laws regarding wills to ensure yours meets the legal requirements.
A probate attorney, like Patricia K Wood Atty, can help you find other ways to keep your life insurance payout from the probate court. He or she can also help with other estate planning, including creating a trust and will.