Do Life Insurance Policies Have To Be Probated?

Probate, despite rumors to the contrary, is a necessary and usually legally required action after a death. While you can (and should) take action to keep as much of your assets as possible out of probate's reach, it will proceed in nearly all cases — even when the estate is small. The reason mostly has to do with the fact that probate is not just about dealing with the deceased's property but with their debts as well. One common asset after a death is the life insurance policy. Read on to find out more about how probate deals with this issue.

How Probate Enters the Picture

Without the advent of probate, the property the deceased leaves behind might be absconded with by almost anyone. Probate gives the deceased a way of making their wishes for their assets known — with a will — as well as dealing with unpaid bills like taxes and other debts. One of the more negative and annoying aspects of probate is the time needed for the process to be complete. Depending on the size of the estate and the number of complicating issues like challenges to the will (contesting the will), probate can take anywhere from a couple of months up to a year. For some, the state provides alternatives to a full probate filing process. If the assets of the estate are under a certain dollar limit, probate may be shortened or eliminated.

How Final Arrangements Are Affected by Life Insurance

While some people take a proactive approach to their final arrangements and pay the funeral home directly ahead of time, many depend on the proceeds of the life insurance policy to pay for the final expenses. Funeral homes often work with loved ones after a death to make financial arrangements, and it's not uncommon to use a life insurance policy. Since it might take several weeks, or even longer, for the insurance funds to be paid, the beneficiaries form an agreement with the funeral home to turn over the cost of the burial and funeral to the funds from the insurance policy.

As you might have deduced from this use, life insurance policies are exempt from probate so the funds from a policy are available as soon as the death certificate is available. The reason for this is that the funds are not technically part of the estate. As soon as the owner of the policy passes away, the named beneficiaries on the policy become the owners. Interestingly enough, almost any time you place the name of others on property, it won't be subject to probate. That also means you can add names to deeds, put designations on bank accounts, and re-title vehicles and keep all of those things out of probate. To find out more about this issue, speak to a probate attorney. 

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