Life Insurance Proceeds: Surrogate's Court Jurisdiction

Life insurance proceeds are generally not subject to probate court involvement as they are typically transferred directly to the designated beneficiary in the policy. However, insurance policies payable to the deceased person's estate are subject to probate. Probate is a formal process that ensures taxes and debts are paid, and remaining assets are distributed according to the law. In most cases, probate is only required when the deceased's assets exceed a certain value, typically $100,000. The Surrogate's Court, as outlined in the New Jersey State Constitution, acts as a depository for life insurance proceeds awarded to minors until they reach the age of majority (18).

Life insurance proceeds and probate

Probate is a court-supervised process that ensures taxes and debts are paid, and remaining assets are distributed according to the will or state law. It can be a lengthy and costly process, causing additional stress for loved ones. During probate, a court approves a will and appoints an executor to carry out the payment of debts and distribution of assets. If there is no will, the court appoints an administrator to manage the estate according to state law.

To avoid probate, it is essential to keep life insurance beneficiary designations up to date. Beneficiaries must be alive, over the age of 18, and should include a contingent beneficiary in case the primary beneficiary is unavailable. By properly designating beneficiaries, you can ensure that life insurance proceeds are transferred directly to the intended person, bypassing probate and providing quick access to funds during a difficult time.

In summary, life insurance proceeds are generally not subject to probate as long as the policy is up to date with a designated beneficiary. However, if the policy is payable to the deceased's estate or lacks a valid beneficiary, it becomes part of the probate process and is used to settle debts and taxes before distribution.

Probate court involvement

Probate is a formal process that involves the validation of a will, the appointment of an executor, and the distribution of assets in accordance with the law. It is intended to ensure that taxes and debts are paid from the estate of the deceased. In some cases, probate is only required if the assets solely owned by the deceased are valued at over $100,000. Probate can be a lengthy and costly process, causing additional stress for loved ones.

A life insurance policy is a contractual instrument, and the proceeds are usually paid directly to the designated beneficiary. Therefore, in most cases, there is no probate court involvement. However, if the beneficiary is deceased, a minor, or unable to be located, the policy will likely have to go through probate so that the court can determine the rightful recipient of the benefit. Additionally, if there is no listed beneficiary or if the policy is payable to the deceased's estate, probate will be necessary.

The basic probate process involves the following steps:

• An individual or entity petitions the probate court to become the legal representative of the estate.
• The legal representative notifies heirs and creditors of the death.
• The legal representative takes possession of the deceased's assets.
• The legal representative pays funeral expenses, taxes, and debts.
• The legal representative transfers any remaining assets to the heirs.
• The legal representative notifies the court of its actions and requests the closure of the estate.

It is important to note that probate court involvement can be avoided by properly designating beneficiaries. To do so effectively, it is essential to ensure that the beneficiary is alive, over the age of 18, and updated after any major life events such as divorce, marriage, or death.

Insurance policies payable to the deceased

When a person with a life insurance policy dies, the designated beneficiary must contact the insurance company and file a claim for the death benefit. The beneficiary will likely need a certified copy of the death certificate. Once the claim is approved, the insurance company will pay out directly to the beneficiary.

If the beneficiary listed on the policy has died, is uncontactable, or there is no listed beneficiary, the policy must go through probate so that a court can determine who can legally claim the benefit. If the beneficiary is a minor, the court may appoint a guardian, which would also require probate.

If a life insurance policy goes through probate, it will be used first to pay any remaining taxes or debts before the remainder is distributed to the beneficiary. This is why it is important to keep beneficiary designations up to date.

In the case of a lost life insurance policy, there are steps that can be taken to locate it. The National Association of Insurance Commissioners' (NAIC) Life Insurance Policy Locator (LIPL) is a free online tool that helps consumers find lost policies. The Lost Policy Finder is another free service that assists families in locating unclaimed benefits on life insurance policies of a deceased immediate family member.

Claiming a life insurance benefit

Collect Important Documents:

Get several certified copies of the death certificate, which serves as proof of death. You can request this from the funeral home, medical professional, or local vital records office. Additionally, obtain the policy document, which includes details such as the policy number, benefit amount, and beneficiaries. If you're having trouble locating the policy, contact the insurance company or the deceased's financial representatives.

Contact the Insurance Company:

Reach out to the insurance company to notify them of the death and initiate the claim process. If you have an insurance agent, they can assist you in filling out the necessary forms and liaising with the insurance company. Provide them with the claim form, also known as a "request for benefits," which includes information about the policyholder, cause of death, your relationship to the policyholder, and your preferred method of receiving the benefit.

Wait for the Claim to be Processed:

The insurance company will perform checks to ensure the policy is active and confirm your identity as the beneficiary. This process can take a few days to several weeks, depending on the company and state regulations.

Receive the Death Benefit:

There are several options for receiving the death benefit, with the two simplest being a lump sum or an annuity. A lump sum payment provides the entire benefit at once, while an annuity invests the benefit and pays it back in annual installments over several years. It's important to note that any interest income earned through an annuity option is subject to taxation.

Life insurance and estate taxes

Life insurance and probate

Probate is a formal process that ensures that taxes and debts are paid and that remaining assets are distributed in accordance with the law. In many cases, probate is only required when assets solely owned by the deceased are valued at more than $100,000. An up-to-date life insurance policy does not need to go through probate as the beneficiary is designated within the policy. The insurance is paid directly to the beneficiary upon the death of the policy owner.

However, if the beneficiary is deceased, cannot be located, or if no beneficiary is listed, the policy must go through probate. If the beneficiary is a minor, the court may appoint a guardian, which would also require probate. When a life insurance policy goes through probate, it is first used to pay any remaining debts or taxes before the remainder is distributed to the beneficiary.

How to avoid probate

The best way to ensure a life insurance policy does not go through probate is to properly designate beneficiaries. This includes updating the policy after major life events such as divorce, marriage, or death.

While life insurance with a designated beneficiary does not need to go through probate and is therefore not used to pay income taxes, it is a different story when it comes to estate taxes. The cash value of a life insurance policy is included in the taxable estate of the deceased and is subject to state and federal estate taxes.

The federal estate tax exemption is $12,060,000 in 2022, but some states have lower thresholds for their own estate taxes. Therefore, it is important to consider the impact of life insurance proceeds when planning your estate to avoid unexpected taxes.

Frequently asked questions