If there is not a surviving spouse, the face amount of the life insurance will be counted in the value of the estate. If it is over the exempted amount, estate taxes will be owed on the amount that exceeds the estate tax exemption.
However, life insurance does not go into the estate for purposes of probate, and is not charged income taxes. It goes straight to the beneficiary.
If a properly set up ILIT (Irrevocable Life Insurance Trust) is used, the value of the life insurance is not considered in the value of the estate.
That is a great question! Ordinarily, no it wouldn't. The process being that when you got the policy, you named a beneficiary, and hopefully a contingent beneficiary, and then kept up with those designations. When you pass, the policy proceeds would go to the named beneficiary. Should the beneficiary have preceded you in death, the proceeds would move to the contingent beneficiary. Only when there is no named beneficiary to receive the benefit, or a spouse to claim it, would it fall back to the estate. At that point, you've got taxes, and probate issues, so it is always wiser to have your beneficiaries up to date. Thanks for asking!
President, Lane Independent Agency, Southern California
You have hit on one of the Greatest Values in Life Insurance. If you name a beneficiary, and they are alive at your death, the payment does directly to them, and not into your estate! However, if they die before you and you have not named a replacement beneficiary, it will go into your estate. So avoid the great expense of probate, and the lengthy delays of going to probate court, and be sure to keep up to date your named beneficiary. Thank you. GARY LANE.
Yes, you can make the beneficiary of a life insurance policy the estate and the proceeds will go into the estate. You really don't want to do that. The great benefit of life insurance is being able to leave money to a loved one that cannot be taxed and does not have to pass through probate. If your estate is the beneficiary of your life insurance proceeds not only will the money be tied up in probate court for months, but it will be taxed along with the estate taxes.
Please seek advice of a professional before making this common error.
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However, life insurance does not go into the estate for purposes of probate, and is not charged income taxes. It goes straight to the beneficiary.
If a properly set up ILIT (Irrevocable Life Insurance Trust) is used, the value of the life insurance is not considered in the value of the estate.
Please seek advice of a professional before making this common error.