Life insurance can serve as a key financial asset in estate planning. Whether or not its proceeds pass through probate depends primarily on the policy’s structure and designation of beneficiaries.
Life insurance with a named beneficiary
When a policy names a living beneficiary, the proceeds bypass probate and go directly to that individual. This not only expedites access to the funds but also preserves privacy, as probate proceedings become part of the public record. Insurance companies follow the beneficiary designation on file, not the instructions in a will.
You must ensure that the listed beneficiary is alive and accurately recorded. If the beneficiary predeceases the insured or if the policy lacks a named beneficiary, complications can arise.
What happens when no one is listed
In cases where no valid beneficiary exists, the life insurance proceeds revert to the decedent’s estate. These funds then become probate assets, subject to court oversight. The probate process may delay distribution and deplete the value of the proceeds through legal fees, taxes, and administrative expenses.
In this scenario, creditors of the estate can assert claims against the proceeds. Unlike non-probate transfers, which typically shield life insurance from estate debts, probate assets do not offer that protection.
Changing or updating beneficiaries
To prevent life insurance from entering probate, policyholders should regularly review and update beneficiary designations. Naming an individual or trust provides the clearest route for direct payment. Designating the estate as beneficiary should remain a last resort. Because life insurance contracts operate independently of wills, policyholders must work directly with insurers to modify beneficiaries.
Accurate and up-to-date beneficiary designations ensure that life insurance functions as intended—providing timely, protected financial support outside the probate process. Regular policy reviews and clear documentation help avoid unnecessary legal entanglements and preserve the value of the proceeds.
