Life insurance proceeds are usually protected from creditors in New York if the beneficiary of the policy is a person or other entity besides the estate. If the beneficiary is the estate, then the life insurance proceeds are subject to probate and creditors will try to get the debt repaid at that time. However, creditors cannot go after life insurance left to a beneficiary unless that beneficiary also shared in the debt.
Life & Health Insurance Agent, The Tooker Agency, Riverhead NY
While it appears simple on its face, the life insurance exemption from creditor claims can be very confusing. It is the opinion of some attorneys who specialize in life insurance law that the only way to truly protect life insurance proceeds from creditors of the insured is to have the policy owned by an irrevocable life insurance trust (ILIT). Similarly, the only way to protect the proceeds form the creditors of the beneficiary is to have the proceeds paid into a discretionary spendthrift trust instead of directly to the beneficiary.
Obviously these are issues that should be discussed with a qualified estate planning attorney. If you don't know one, chances are that your life insurance agent will be able to refer you to one. This type of advanced planning may not be justified in ordinary circumstances. However if there is a good possibility that there could be claims by creditors of either the insured or the beneficiary, then the use of appropriate trusts should be considered.
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Obviously these are issues that should be discussed with a qualified estate planning attorney. If you don't know one, chances are that your life insurance agent will be able to refer you to one. This type of advanced planning may not be justified in ordinary circumstances. However if there is a good possibility that there could be claims by creditors of either the insured or the beneficiary, then the use of appropriate trusts should be considered.