Are life insurance benefits considered part of a decedent's estate?
Full Question:
Answer:
Certain assets, such as trusts, transfer on death accounts, and joint assets with a right of survivorship aren't included as part of the probate estate and pass directly to the beneficiary on death. For example, a life insurance policy may name a beneficiary, and transfer on death, avoiding probate. A home owned as joint tenants with a right of survivorship will also pass directly to the surviving owner and is not part of the probate estate.
Life insurance proceeds are typically transfer on death assets, meaning that they’re not included in the deceased estate and pass directly to the beneficiaries outside the probate process. However, it is possible to place a life insurance policy in a trust, so that the trustee pays the premiums. A living trust may be created during the life of a policyholder. Some trusts are created with a provision that the trustee dictates exactly how much each beneficiary gets. Some people create a trust to minimize estate taxes which apply to large estates.
If the decedent owns the policy, proceeds are includable in his federal taxable estate, even though paid to somebody else, unless an irrevocable trust owns the policy. The proceeds are likewise includable if the policy owner names his "estate" as beneficiary.