When a person passes away, much of their estate will go through probate. This can take time, so people are often curious about what assets need to go through probate and what can be transferred more quickly. For instance, a payable on death account typically skips probate because the beneficiary simply takes over the account once they provide proof of the previous account holder’s passing.
But what about a life insurance policy? Say that a person buys a $1 million life insurance policy that they want to split between their two adult children. Does that have to go through probate in order for them to receive the payout?
Life insurance is an independent process
Generally speaking, life insurance will not go through probate and does not even need to be addressed in your will. Instead, the life insurance company is notified of who the beneficiary is when the policy is purchased. Upon the policy owner’s passing, the life insurance company will simply pay that beneficiary directly, so the money is not in the deceased’s estate and does not need to go through probate.
This also means that instructions in the will are not going to be binding. If the person only named one of their children as the beneficiary but left instructions in the will saying they should split the payout, the life insurance company is not involved in dividing that payout. They simply pay the named beneficiary, who can then decide how they want to use the money. The life insurance beneficiary designation trumps the will.
With major assets, it is very important to consider how they will work within an estate plan and how they should be distributed to the next generation. When there are questions, it can help to work with an experienced law firm.