Berman & Asbel, LLP

Life insurance policies in estate plans

Many Pennsylvania residents draft a last will and testament because they have very clear wishes about how they would like their estates to be distributed after they pass away. Financial assets like life insurance policies and retirement plans often account for a significant portion of their estates, but they are generally dealt with according to the provisions of the documents themselves rather than the terms of a will when their owners die.

This could be a desirable outcome in some situations. Individuals listed as the primary beneficiaries on financial accounts will generally receive their funds far more quickly than heirs who must wait until the complex and lengthy probate process has run its course, but problems may develop if the terms of insurance policies and savings plans no longer match the estate planning wishes that their owners have laid out in their wills.

Matters can become even more complicated if the designated beneficiary listed on an insurance policy or retirement account predeceases the account holder. In this situation, the proceeds would generally pass to the estate rather than to heirs directly, and this could deny these heirs a number of tax benefits and lead to them receiving bills from the IRS.

Experienced estate planning attorneys may bring up the issue of beneficiary-designated assets during their initial consultations with new clients, and they could remind those that already have an estate plan in place to review and revise their insurance policies and retirement plans on a regular basis. Attorneys may also recommend the use of trusts to add an additional layer of privacy and control to estate plans.

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