1. 805 POINTS
    Benjamin Thornton
    Insurance Broker, Arlington, Massachusetts
    Life insurance becomes part of the estate if none of the beneficiaries are able to be found. This is one of the reasons it is important to keep your life insurance policies up to date.  If you purchased the insurance through an agent, make sure to keep them informed of any changes in your choices. It will make everything easier for the people you leave behind.
    Answered on April 28, 2014
  2. 11498 POINTS
    Jason GoldenzweigPRO
    Co-Founder, TermInsuranceBrokers.com, Goldenzweig Financial Group, Las Vegas, Nevada
    Life insurance benefits are income tax free, but they can be included in the calculation of your taxable estate for estate tax purposes.The life insurance proceed amount is included in your gross estate if the proceeds are paid to the estate - this can happen if the named beneficiaries predecease the insured or if the estate is named the beneficiary directly.

    A life insurance trust can help keep the proceeds out of the calculation of the estate - the trust would become the owner and beneficiary of the policy and control how the monies are paid out.
    Answered on April 28, 2014
  3. 10968 POINTS
    Tim WilhoitPRO
    Owner, Your Friend 4 Life, Brentwood TN
    There are a few reasons why life insurance proceeds would become part of the estate. The first reason was the estate was the beneficiary. This is not wise unless a trust has been established. This will tie up the life proceeds in probate and can make them taxable when they should be income tax free.

    The second common reason is the beneficiaries preceded the insured in death and there was no living contingent beneficiary.

    The third most common reason is an older life policy that the beneficiary has not been kept up to date. This is an example of why consumers need life brokers to stay in touch and keep these policies up to date for the sake of the beneficiaries.
    Answered on April 28, 2014
  4. 63333 POINTS
    Peggy Mace, Certified Senior Advisor (CSA)®PRO
    CEO, Outlook Life, Inc, Most of the U.S.
    When the owner of a life insurance policy dies, and he/she is also the Insured, the proceeds of that policy are considered part of his/her estate. If the beneficiary of the policy is a spouse, that money passes to the spouse tax free. If there is no surviving spouse, the money is subject to estate taxes, but only if the value of the entire estate exceeds a certain amount. If the money is left to an ILIT (irrevocable life insurance trust) that was properly set up years before the death of the Insured, then those proceeds are not considered part of the estate.
    Answered on April 28, 2014
  5. 7479 POINTS
    Steve KobrinPRO
    President, The Firm of Steven H. Kobrin, LUTCF, 6-05 Saddle River Rd #103, Fair Lawn, NJ 07410
    First of all, you really need to talk to an estate planning attorney about this.
    We insurance guys know a lot about estate planning, but when there is a lot on the line, you need to consult with the expert.

    Plus, frankly, unless we have a special professional liability policy to cover this area, we don’t have the insurance protection needed to cover our mistakes.

    One other point: make sure the attorney with whom you speak is a specialist in estate planning. Not real estate, not commercial law, not litigation. You want to get the best advice possible. Too much money is involved to speak with someone who only has a general knowledge of the field.

    Having said that, I can offer the following:

    If you designate yourself as the owner, could the benefit amount be included in your state? Yes.
    If you designate the estate as the beneficiary, could the benefit amount be included in your estate? Yes.
    If the beneficiary predeceases you, could the benefit amount end up in your estate? Yes.

    Now: can you avoid these issues? Yes.
    Could you use a trust as a tool for doing so? Yes.
    Do you have a choice among different kinds of trusts? Yes.

    Can you see why you need to talk to an expert on estate law to make a final decision here?

    There are a number of routes to take. Whatever route you choose, you still need your broker to audit your policy on a regular basis. He or she needs to make sure it continues to meet your original expectations.

    If you do use a trust, a policy audit will definitely be beneficial to your trustee.
    That person could have legal liability if the insurance policy underperforms.
    A policy audit could head off trouble.
    Answered on September 8, 2015
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