Does Life Insurance Go Through Probate?

by | Jan 20, 2023 | Estate Planning, Probate, Probate And Estate Administration |

Estate planning can be complex and daunting, but getting the help of an area specialist like Attorney Alice A. Salvo can help. One of the many options for estate planning is a life insurance policy. Insurance can be used in various ways, but it requires the proper planning and handling to ensure it is used as desired.

For example, wise estate planners will seek to avoid the probate process in as many ways as possible. Probate is lengthy and costly and a huge headache. How you choose to use a life insurance policy will determine if it must be included in the probate process after your death. Let’s take a closer look.

Life Insurance, Probate and CA Estate Planning

When you purchase a life insurance policy, you contract with an insurance company to provide a payout when the insured person dies. This payout is known as a death benefit. You pay the premiums and the insurance company honors the contract as written. You may take out a life insurance policy on virtually anyone. It’s a simple arrangement that can yield great benefits for estate planning.

The life insurance death benefit is paid to whomever the policy owner named as a beneficiary. This is where you can determine if a life insurance policy will avoid probate or have to be included. The beneficiary is the key.

Life Insurance with a Named Beneficiary

Life insurance policies require a beneficiary, to whom the death benefit is paid out. If at least one beneficiary is named (you can name as many as you want) and the beneficiary is alive when the insured person dies, they receive the policy’s death benefit. Because a beneficiary is named in the legal insurance contract, the death benefit is a direct transfer that does not require probate. However, your beneficiary may face estate taxes on the death benefit.

Life Insurance without a Named Beneficiary

If you purchase a life insurance policy and do not name a beneficiary, or name your estate as the beneficiary, then the proceeds are subject to probate and can be used to pay for taxes, bills or other debts. This money is also subject to estate taxes.

Using a Trust with Life Insurance

Many estate plans will seek to minimize the tax burden on a life insurance payout by naming a trust as the beneficiary. The trust then receives the death benefit and it avoids estate taxes and probate. However, you and the beneficiary of the trust have limited access to the funds, depending on the type of trust being used. Assets of a trust can only be taken out or used as the trust directs. Then the assets may be subject to taxation.

Should I Use Life Insurance in My California Estate Planning?

Whether or not you should use a life insurance policy in your California estate planning is a decision you should discuss with a seasoned CA Estate Planning Attorney like Alice A. Salvo. Never leave any of your estate planning up to chance or guesswork. If you choose to include a life insurance policy in your estate plan, be sure to be specific about naming a beneficiary or beneficiaries.

The probate process can take a year or more, tying up your estate in costly and worrisome bureaucratic complexities. You can avoid that as much as possible with wise, effective estate planning. That can include life insurance policies and other options. Attorney Alice A. Salvo can offer guidance, information and practical advice along the way, and provide valuable assistance to your family after your passing.

Call our office in Woodland Hills, CA at 818-676-9572 or complete the contact form to request a confidential consultation.


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