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Understanding Estate Debts and Life Insurance: Insights from a Milford Probate Attorney

  • By Franklin Drazen
  • |
  • Posted October 30, 2023

As an experienced Milford probate attorney, I often receive questions from clients about the relationship between life insurance proceeds and estate debts. Many beneficiaries are uncertain about whether they are obliged to use life insurance proceeds to cover the decedent's debts. Here, we delve into this issue, providing clear, easy-to-understand insights. We provide estate and elder law planning services in Connecticut and beyond.

Life Insurance Proceeds: Generally Exempt from Estate Debts

The principal rule here is straightforward: life insurance proceeds usually pass directly to the beneficiaries, bypassing the decedent's debts. Life insurance is viewed as a non-probate asset, meaning it's not typically subject to the probate process where debts are settled. But as with many legal issues, there are exceptions to consider.

Exceptions to the Rule

  1. Unpaid Life Insurance Premiums: Life insurance companies may deduct any unpaid premiums from the policy payout. Your payout might be less than expected if the deceased had outstanding premiums.
  2. Estate as Beneficiary: If the decedent's estate is named the policy beneficiary, the life insurance proceeds become part of the estate's assets. In this scenario, these proceeds can be used to settle the estate's debts.
  3. Federal Estate Taxes: For U.S. residents who qualify to file Federal Estate Taxes, if the deceased retained ownership of the policy at the time of death, the life insurance proceeds might be subject to federal estate tax.
  4. Medicaid Estate Recovery: Some U.S. states have rules that allow for the recovery of Medicaid benefits from a decedent's estate. If the deceased person received Medicaid benefits, life insurance proceeds could potentially be used to repay these costs, but only if the estate is named as the policy beneficiary.
  5. No Named Beneficiary or Beneficiary Predeceases: If the policy lacks a named beneficiary or if the beneficiary predeceases the policy owner, then the life insurance proceeds may default to the estate and become available for settling estate debts.

Navigating Complex Probate Matters with Your Milford Probate Attorney

The rules around life insurance and estate debts can be intricate and vary based on jurisdiction and individual circumstances. That's where our Milford probate attorneys come in. We're here to provide personalized advice, helping you navigate the complexities of probate law and ensure that you understand your rights and responsibilities as a beneficiary.

We aim to make this difficult time easier by providing clarity and peace of mind. If you have any questions or need assistance with probate-related issues, please don't hesitate to contact our office for a consultation with our Milford probate lawyers.

Contact our elder law and estate planning lawyers located in Milford and Harford, Connecticut.