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Can an estate be a life insurance beneficiary?
Old 11-01-2016, 07:19 PM   #1
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Can an estate be a life insurance beneficiary?

I was wondering whether it is ever an option or even common for someone's estate to be the beneficiary of their life insurance.

I am thinking about my (still living) father's estate. I am considering setting up his only brokerage account to pay beneficiaries at TOD (time of death). But was thinking that if the smaller life insurance could be paid to the estate to help cover any costs, then I would feel more comfortable about the brokerage account passing independently of the remainder of DD's estate.

I downloaded the beneficiary form from his life insurance (a retirement benefit), but I only see a way to name individuals as beneficiaries.

My three siblings are the beneficiaries. I am the executor. I had Dad change his will many years ago to exclude me as a beneficiary since my net worth is much larger than his or any of my siblings.

The brokerage beneficiaries will match the beneficiaries for the rest of his estate covered by his will. So if issues with estate costs come up, there shouldn't be conflicts - the heirs will just have to cough up funds if necessary. Hopefully there won't be anything not already covered by his checking account which has fairly high funds at the moment. My father has no debts other than his credit card which is paid off monthly.

One brother and I are named on his checking account. So from that we would have some initial funds for managing estate expenses until the estate is disbursed to any heirs. My advice to Dad is to let funds accumulate in checking and not transfer any more to his brokerage.

The estate is well under any estate tax limits.

BTW - Dad didn't know who the beneficiary of his life insurance retirement benefit is!!! I called them today and they are sending Dad a beneficiary confirmation letter, so we'll see who is listed! Yet another thing to be updated.
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Old 11-01-2016, 07:27 PM   #2
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yes, you could do that, but keep in mind that the death benefit will be added to the estate total for taxes- it could trigger estate taxes on the whole estate if estate tax laws change and your dad isn't in a condition where he could change his beneficiary
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Old 11-01-2016, 08:32 PM   #3
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yes, you could do that, but keep in mind that the death benefit will be added to the estate total for taxes- it could trigger estate taxes on the whole estate if estate tax laws change and your dad isn't in a condition where he could change his beneficiary
Actually for federal estate tax purposes any insurance even if paid to a beneficiary gets included in the estate. (assuming the deceased owned the policy)
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Old 11-01-2016, 08:35 PM   #4
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Another thought is that it seemed to take a very long time for life insurance from retirement benefits to be paid out, well over 6 months, when a friend's spouse died. So these funds would probably not be timely enough to help fund settling of the estate.
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Old 11-01-2016, 09:54 PM   #5
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I would have both his brokerage accounts and life insurance go to the beneficiaries designated in his will and just manage his checking account so there is enough money for final expenses. Having managed two estates that were very simple the final expenses were minimal and nothing to worry about... just regular bills that were timing and funeral expenses. Luckily, in both cases the decedents had already moved out of the apartments they rented and spent final months in a nursing home so that made settling the estate easier.
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Old 11-02-2016, 08:45 AM   #6
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We recently completed the probate process for an aunt that died 3 months shy of 100. We'd long since sold her real estate and had all funds sitting in conservative Merrill Lynch accounts--which were wire transferred to her heirs.

Her business would have been very simple and easy to handle--thus avoiding probate. However still she had some partnerships with the CPA firm she once owned. The partners didn't want to pay cash out of pocket to liquidate her share--and drug out settling with the heirs. They also did some revisions on past tax returns--complicating things.

I'm a believer in keeping an estate as simple as possible. If accounts can have beneficiaries, let the funds go directly to them outside of the estate. Keep enough cash to pay any estate liquidation costs. And if there is no real estate within the estate, try to avoid probate if at all possible. Just keep all matters as simple as possible.
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Old 11-02-2016, 04:26 PM   #7
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If the siblings are agreeable, put your name on the life insurance policy. Let 'the system' distribute as much of the assets as possible. Settle any final debts out of the proceeds of the checking account first, then out of the life insurance policy (thus your checkbook). If there is anything left over, you can gift that balance to the other siblings.
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Old 11-02-2016, 04:42 PM   #8
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I would have both his brokerage accounts and life insurance go to the beneficiaries designated in his will and just manage his checking account so there is enough money for final expenses. Having managed two estates that were very simple the final expenses were minimal and nothing to worry about... just regular bills that were timing and funeral expenses. Luckily, in both cases the decedents had already moved out of the apartments they rented and spent final months in a nursing home so that made settling the estate easier.
Yeah - I think that's what I'm going to do. Allow funds to accumulate in his checking to cover estate expenses. He has prepaid for his funeral expenses and has arrangements with a local funeral home.

There is a house and quite a bit of farm land that will pass to his heirs, and if extra expenses are incurred in the selling of the property, his heirs will just have to deal with that. Those expenses would be reimbursed once the property sells.
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Old 11-02-2016, 04:43 PM   #9
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If the siblings are agreeable, put your name on the life insurance policy. Let 'the system' distribute as much of the assets as possible. Settle any final debts out of the proceeds of the checking account first, then out of the life insurance policy (thus your checkbook). If there is anything left over, you can gift that balance to the other siblings.
Of course that is if you wish to avoid probate, otherwise the estate could be the beneficiary and the proceeds go into its checking account.
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Old 11-02-2016, 04:53 PM   #10
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There is a house and quite a bit of farm land that will pass to his heirs, and if extra expenses are incurred in the selling of the property, his heirs will just have to deal with that. Those expenses would be reimbursed once the property sells.
We're dealing with a variation of that theme. My mom passed away four weeks ago and I am both the executor and the successor trustee. Fortunately, all of their liquid financial assets and the house were placed under ownership of the trust, avoiding probate on virtually all of it. But many of the same things apply -- as of now I am in the process of transferring the living trust assets into new accounts in a now irrevocable trust. I still don't have access to the funds in those accounts, but I and my siblings have been paying various expenses -- final hospital bills, ambulance payment, funeral expenses above and beyond what my parents had prepaid, and property tax on her now vacant home (on the market and hopefully under contract within about 24 hours).

We have to keep tabs on this and document our expenses because when I get access to the trust funds and can write checks on it, I will have to start reimbursing everyone for their expenses. I'm also paying all the utility bills and such for now.
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Old 11-02-2016, 05:01 PM   #11
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We're dealing with a variation of that theme. My mom passed away four weeks ago and I am both the executor and the successor trustee. Fortunately, all of their liquid financial assets and the house were placed under ownership of the trust, avoiding probate on virtually all of it. But many of the same things apply -- as of now I am in the process of transferring the living trust assets into new accounts in a now irrevocable trust. I still don't have access to the funds in those accounts, but I and my siblings have been paying various expenses -- final hospital bills, ambulance payment, funeral expenses above and beyond what my parents had prepaid, and property tax on her now vacant home (on the market and hopefully under contract within about 24 hours).

We have to keep tabs on this and document our expenses because when I get access to the trust funds and can write checks on it, I will have to start reimbursing everyone for their expenses. I'm also paying all the utility bills and such for now.
When I handled my parents estate as executor, I paid most bills until the estate was opened and reimbursed myself from the estate. For medical bills of course you could also call and tell them that the payment will be made when the funds become available, I did that with a 1k ambulance bill and they understood and were willing to wait. You do this with bills that are unlikley to repeat such as medical and ambulance bills.

BTW things like utility bills and the like that are needed to keep the value of estate property are considered administration expenses, and have the highest priority of payment out of an insolvent estate.
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