Estate planning can often feel confusing. In many cases, just the thought of planning for what happens to your possessions after you pass away can be difficult. However, one method of planning for life after you are gone has been in use for many years and is extremely easy to use and understand. Read on and find out how a life insurance policy fits so well into any estate plan.
Probate and Life Insurance Policies
Life insurance proceeds are never probated, with one rare exception. Life insurance policies name beneficiaries on the policy. The funds from the insurance policy go directly to the named beneficiaries once a death certificate has been issued and presented. In most cases, a death certificate is issued within a week or two of a natural death. However, if the death was suspicious or did not occur in a medical setting, there can be delays in the issuance of a death certificate.
While life insurance policy proceeds normally avoid probate completely, one rare exception is a reminder to keep your estate records updated regularly. If the beneficiary named in the life insurance policy has passed away prior to the death of the policy's owner, the proceeds of the policy could be subject to probate court handling.
Life Insurance and Funeral Expenses
Many people make it known that their life insurance policy is to cover their final expenses. In fact, funeral homes are accustomed to taking ownership of the policy when the arrangements are made. However, there is no law that compels a beneficiary to sign over a life insurance policy to a funeral home. The funeral home will need to wait until the death certificate is available before the policy proceeds are distributed.
If the policy falls short, the estate will owe the remainder. If the policy pays the final expenses and has money left over, that money goes to the person named as the beneficiary of the policy. If you decide to do things this way, be sure your beneficiaries understand your wishes. It may be better to make your own final arrangements and pay for them rather than confuse things using a life insurance policy.
Life insurance policies, however, are valuable estate instruments regardless of how they are used. The funds are often paid quickly, and no income tax is owed on the proceeds. You can select more than one beneficiary if you wish. Let your beneficiaries know about the election of beneficiary and how to locate the policy. Speak to an estate lawyer to find out more about life insurance policies and other important estate planning matters.