Seventy-five million families in the United States rely on life insurance policies to protect their financial security and future. The residents of Florida own eight million individual life insurance policies, and their coverage averages approximately $130,000 per policyholder.

While estate planning, lawyers routinely handle matters pertaining to wills and trusts, after a person dies, most families are depending on life insurance. Moreover, the party who receives the payout from a life insurance policy is not determined by anything written in a will or in a trust.

IS A LIFE INSURANCE BENEFIT SUBJECT TO PROBATE?

As you know, when you buy life insurance, you name one or more beneficiaries who will receive the death benefit. Is that benefit subject to probate – and thus to taxes and debt collection? And what happens to a life insurance policy if the beneficiary has passed away or cannot be located?

Exactly what happens in the probate process? Should probate be avoided if possible? If you keep reading, you will learn some answers in this brief discussion of life insurance and probate.

WHAT HAPPENS TO LIFE INSURANCE IF THERE’S NO BENEFICIARY?

In most cases in Florida, life insurance will be paid directly from a life insurance company to the policy’s beneficiaries, and probate usually is not required or necessary. Because it is not subject to taxes or debt collection, life insurance is not deemed to be a part of a policyholder’s estate.

But what happens if a policy’s beneficiary cannot be located – or is now deceased? If no beneficiary claims the benefit, it may be added to the deceased policyholder’s estate, and that makes the life insurance benefit subject to the probate process.

WHAT, PRECISELY, IS PROBATE?

Probate” is the legal process that distributes a deceased person’s estate. The probate process typically uses the deceased person’s will as a starting point, because the will names the beneficiaries who will be entitled to a part of the estate when it is distributed by an executor.

Particularly with high asset estates, probate is often a lengthy and contentious process as multiple parties claim parts of the deceased person’s assets. If it is at all possible, probate is something to avoid – even if, in the end, the process has been fair and the estate is distributed properly.

WHAT ARE PROBATE ASSETS?

Probate assets are those assets that a deceased person owned singularly and exclusively in his or her name at the time of death and any assets owned by both the deceased person and one or more co-owners that lack a legal provision for automatic succession.

If someone dies in the state of Florida with outstanding debt, that person’s estate will pay off (or will go toward paying off) the debt, and federal estate taxes may also have to be paid. (There is no state-level estate tax in Florida.)

However, when a death benefit is paid directly by an insurance company to a policy’s beneficiary, the beneficiary is paid the benefit in full, and there is no tax or debt obligation.

According to the Florida Bar Association, in this state, “A life insurance policy … that is payable to a specific beneficiary is not a probate asset, but a life insurance policy … payable to the decedent’s estate is a probate asset.”

IF THERE’S NO BENEFICIARY, WHO GETS THE LIFE INSURANCE?

Here in Florida, scores of people do not name a life insurance beneficiary. If no beneficiary has been named, if no beneficiary can be located, or if the designated beneficiary has passed away, the insurance company pays the estate, and the death benefit is subject to probate.

Probate is a complex and difficult process. Surviving family members who need help regarding any life insurance or probate matter should contact an experienced West Palm Beach estate planning attorney at once. Any failure to act promptly could be costly.

WHAT’S IMPORTANT TO REMEMBER?

What is important to remember is that your life insurance policy’s beneficiaries need to be alive and locatable at the time of your death. This means that you may occasionally need to update the names of the policy’s beneficiaries.

Keeping your policy up-to-date ensures that the death benefit will not be subject to probate. Naming a second (or a “contingent”) beneficiary is a smart idea – in case your primary beneficiary dies or disappears before you can make an update.

What is also important to remember is that you are reading only a general discussion of life insurance and probate in Florida. Everyone’s situation is unique, so you must have the insights and personalized legal advice that an experienced south Florida estate planning lawyer can offer.

WHAT CAN HAPPEN IF THERE’S A DISPUTE AMONG BENEFICIARIES?

Beneficiary disputes over life insurance benefits can emerge when a deceased person changed a beneficiary before his or her death and there is a dispute regarding the validity of that change.

The courts in Florida will invalidate a life insurance beneficiary change if the change involved any type of fraud or undue influence or if the policyholder lacked the mental capacity to make such a change competently.

Most insurance companies have strict procedures in place for changing a beneficiary. A Florida court will consider the deceased person’s medical records, the statements of witnesses, and other evidence to help determine the person’s mental state when the change was made.

WHEN SHOULD YOU SPEAK WITH AN ESTATE PLANNING LAWYER?

If you believe that you are rightfully entitled to a loved one’s life insurance benefits, and if your claim to those benefits is denied for any reason, discuss your situation with a good Florida estate planning and insurance attorney. You may be able to take legal action and obtain justice.

And if your family depends on you, it is not too early to begin planning your estate. Proper estate planning requires an experienced West Palm Beach estate planning attorney who will help you create legal documents which ensure that your wishes are carried out with minimal interference.

No one can know what tomorrow may bring, but a good south Florida estate planning lawyer will work with you diligently until your estate planning process is complete and meets entirely with your satisfaction.

And if the responsibility for a loved one’s financial affairs falls on you after that person’s death, reach out to an experienced Florida estate planning and probate attorney for the timely advice and legal help that you will very much need.