Does my Will control who receives my life insurance benefits at my death?

Clients sometimes ask this question--often because they are confused about the relationship between their Will and their life insurance policy. After all, doesn't the Will designate a person's beneficiaries? This blog will clarify the relationship between the Will and life insurance.

A Last Will and Testament allows the person who signs it to designate who will be their beneficiary(s). However, the Will only controls the assets or properties that are subject to probate. For example, if a person has a bank account that is solely in their name (no co-owner or beneficiary) then when the person dies, the account will be subject to probate in order to gain access to the funds in the account. In other words, since the owner is deceased, then only way to get to the funds is through the probate. In the probate, the Will controls who will receive the distributions from the probate Estate.

But not all assets and property go through probate. Some are not controlled by the Will and they do not need probate court involvement in order to transfer at death. These types of assets usually avoid probate by naming a beneficiary. This is the case with life insurance which allows the owner to designate a beneficiary(s). So long as the owner names a beneficiary in the life insurance policy, and so long as the designated beneficiary is living at the time the owner dies, then the life insurance company will pay out to the beneficiary and will not require probate. This is one of the benefits of owning life insurance--it allows transfer at death without the time and expense involved with probate. Another benefit of life insurance passing outside of probate is that the proceeds are not subject to the claims of creditors.

That having been said, there are circumstances where life insurance can be subject to probate. This arises primarily where the person(s) designated as beneficiary has died first. If there is no living beneficiary, including no contingent living beneficiary, then many life policies provide that the death benefits will be paid to the estate of the deceased owner. This would require opening a probate to deal with those benefits. Through the probate, the death benefits would be paid into the estate and eventually to the beneficiaries as directed in the Will.

In our estate practice, when we counsel clients on their estate planning, we encourage them to review all of their life insurance policies. In particular, we want the client to be sure that they have designated a primary beneficiary and a contingent beneficiary. When clients heed our advice and check on their beneficiary designations, we are surprised how often they report back that they did not have both a primary and a contingent beneficiary named. And often they report that their beneficiary designations were out-of-date or even named someone they no longer intended. Exercising this little bit of due diligence may save their family significant time and expense when the owner of the life insurance passes away.

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