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How Life Insurance can Affect an Estate Plan

shutterstock_204507106-300x254Estate planning in New York is important.  It provides an individual with the opportunity to memorialize the manner by which assets can be disposed of upon death.  The creation of a Last Will and sometimes a revocable or irrevocable trust develops provisions designating beneficiaries and the portion of assets they are intended to receive.  The New York Probate Lawyer Blog has published numerous articles regarding estates and trusts.  Estate lawyers are aware of the value of creating appropriate documents.

One aspect of planning often involves life insurance.  This blog post cannot discuss all of the considerations and issues regarding life insurance in such a brief space.  However, a few aspects are worthy of mention.  Life insurance typically takes the form of one of two types.  There is term insurance, which provides only an insurance payment on death without there being any accumulated value to the policy.  Whole life policies not only provide a pay-out of funds but also have an accumulated value over time which may be able to be withdrawn or even used as security for a loan.

Probably the most important item to bear in mind is the designation of beneficiaries.  When a beneficiary is designated (other than a person’s estate), the insurance proceeds are going to be paid directly to such beneficiary.  Since these funds are not paid to the decedent’s estate, the provisions of a Last Will are not going to control the disposition of this asset.  The asset is not included in the probate estate.  Thus, when planning an estate it is important to know which assets are controlled by a Will and which assets pass outside of the testamentary document.  An individual wants to be certain that certain beneficiaries receive only the assets and values intended.

Of course, it is always necessary to investigate the identity of the actual named beneficiaries on the policies.  Sometimes a policy may have been purchased decades ago and the persons designated to receive the benefits are either deceased or no longer part of a testator’s testamentary scheme.  For example, if any elderly parent or sibling was named, it may be necessary to change the designation to prevent the proceeds from being consumed by the beneficiaries’ medical costs.

Another vital inquiry is to examine what policies actually exist.  Sometimes life insurance is taken out to fund or secure obligations relating to a divorce or a business.  Matrimonial settlement agreements and small business agreements often require that life insurance be maintained to cover such things as child support, spousal maintenance or small business buy-out agreements.  It may be that policies were purchased years ago and the current effect on an estate plan should be examined.

Additionally, if agreements exist whereby a decedent was obligated to maintain life insurance but failed to do so, a third party may have a claim against an estate for the value of the insurance which was not maintained.  These matters can result in estate litigation in the Surrogate’s Court.  I have represented estates where these situations have occurred.

Life insurance can play an important role in estate planning.  The proceeds can provide liquidity to an estate and also help pay for estate taxes or other estate obligations.  Thus, it is important to review all matters regarding life insurance for proper planning and estate administration.

Call Me Now for a free confidential review of your estate or guardianship issue.  We provide reasonable and flexible fee arrangements and personal representation.

New York Trusts and Estates Attorney Jules Martin Haas has helped many clients over the past 40 years resolve issues relating to guardianship and probate and estate settlement throughout New York City including the Bronx, Queens, Brooklyn, Manhattan, Nassau and Suffolk County.  If you or someone you know has any questions regarding these matters, please contact me at (212) 355-2575 for an initial free consultation.

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