Could life insurance, a non-probate asset, still end up in court?
On behalf of Scaringi Law posted in Estate Planning on Friday, March 6, 2015.
Although real property may be the most visible type of inheritance, proceeds from securities or life insurance can also amount to a sizable inheritance. For that reason, successful estate planning often requires an individual to coordinate a variety of asset types.
An attorney who focuses on helping individuals create wills and trusts can also offer strategic advice about life insurance. Consulting with an attorney about this type of asset will hopefully avoid some common mistakes.
For example, parents may have named their minor children as the beneficiaries of life insurance policies. Life insurance policies, as a type of payable-on-death asset, normally do not require the court's involvement. Upon the insured's passing, the proceeds are normally paid directly to the beneficiary. Unfortunately, many life insurance policies do not allow direct payments to be made to minors. Instead, the matter might end up in court, where a court-appointed guardian would be tasked with managing the proceeds until the children reach the age of majority.
An estate-planning attorney might suggest two simple solutions to this scenario. The first is creating a trust for the minor child's benefit. That way, the trust could be named as the policy beneficiary and receive the proceeds when they become payable. Another alternative is simply naming an adult custodian under the Uniform Transfers to Minor Act. However, if that custodian is essentially performing the functions of a trustee, it may be more efficient to simply create a trust titled with a variety of assets for the child's benefit, including the life insurance policy.
Source: LifeHealthPro, "10 ways to screw up when picking life insurance beneficiaries," Barbara Marquand, Feb. 19, 2015