Reader Question: Do proceeds of an insurance policy pass under the will? Kevin.Kevin, I hope you don't mind me taking your limited question and expounding further on the issue. In the vast majority of cases, life insurance proceeds pass to the beneficiary of the life insurance policy named in the policy by the owner of said policy. Usually, but not necessarily, the owner of the policy has insured his or her own life. However, it is possible and not unheard of for the owner of the policy to name his or her probate estate as the beneficiary of the life insurance policy. In this case, and only this case, the proceeds of the life insurance policy would be paid into the probate estate and distributed pursuant to the terms of the decedent's last will. Thus, the answer to your question lies in an examination of the policy for the identity of the named beneficiary.
What other types of assets pass outside of probate? Bank, brokerage and other financial accounts including 401(k) and IRA accounts pass outside of probate if they have a beneficiary named on form filed with the financial institution (for states with laws allowing beneficiary designation on financial accounts). See Uniform TOD Security Registration Act. Real estate that is jointly owned with right of survivorship also passes at death outside of probate to the surviving joint tenant. Several US states also allow TOD transfer of items of personal property other than securities.
This sometimes comes as shock to beneficiaries of the estate of a deceased individual. Let's examine a hypothetical to get a sense of the impact that TOD designation and joint ownership with right of survivorship can have on an estate. George is 57 years of age, married to his 2nd wife. They no children together but George has three children from a previous marriage. In his will George names his three children as the sole beneficiaries of his estate. His major assets are as follows: home jointly owned with wife (equity $150k), 401(k)--$100k, $20k in savings account, and motor vehicles worth $12k.
George dies and his will is filed in probate. Real property owned jointly by a husband and wife is assumed by the law to be held with a right of survivorship. Thus, the home passes to George's wife outside of probate. Further, George named his wife as beneficiary of his 401(k) plan. In total, only $40k in assets were listed in the inventory of George's estate. The burial cost $5k. Debts existed of $3k. The probate attorneys fees and costs were $6k. Further, surviving spouse was entitled to a forced share under state law of not less than $25k. That leaves $1000 to be split three ways between George's children. The example of Estate of George is not an uncommon one, unfortunately.
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