by Guest » Tue Mar 01, 2011 10:46 pm
My aunt had a life insurance on her son, she was the named beneficiary and has predeceased the insured. One of the daughters continued to pay the policy, and then the insured passed away. How can this daughter get the insuarance company to pay her the benefits so she can pay the funeral expenses.
Posted: Wed Mar 02, 2011 04:33 am Post Subject:
Best thing to do is go to insurance company and ask them about it and let them see the papers you hold.
Posted: Wed Mar 02, 2011 06:19 am Post Subject:
How can this daughter get the insuarance company to pay her the benefits so she can pay the funeral expenses.
The only way the daughter can get the life insurance death benefits is if she were named a beneficiary in the policy. You stated:
My aunt had a life insurance on her son, she was the named beneficiary and has predeceased the insured.
It looks like you're saying that the aunt was the primary beneficiary and that she died before the insured died. If that was the case, the Contingent (also called "secondary") beneficiary would receive the funds. If that person was also dead, it would pass to the tertiary. Usually doesn't get this far. If there are no living beneficiaries, it's up to the state. Most say the proceeds are payable to the insured's estate.
So, again, the only way the daughter is going to be able to get any money is if she is specifically named as the beneficiary next in line to receive the proceeds. If the funds are payable to the estate of the insured, any funeral costs incurred could likely be claimed against the estate through formal proceedings. If the funds were paid to another person as next in line, that other person has no legal liability in terms of the funeral or other costs unless that person is a party to any of those obligations.
I hope this makes sense...
InsTeacher 8)
Posted: Wed Mar 02, 2011 02:24 pm Post Subject:
If there are no living beneficiaries, it's up to the state. Most say the proceeds are payable to the insured's estate.
You may want to double check this. I believe, but am not certain, that most say that the proceeds are payable to the policy owner. The owner is typically the insured, but not always.
If you think about it, it makes the most sense. Why would something that isn't an asset of the estate (unless the insured is already the owner) get paid to their estate.
It is an asset of the owner and as such, it should get paid to the owner's estate.
Ex. I but a policy on Ins Teacher. We're business partner's. I'm the owner and beneficiary. There is no secondary beneficiary. I die. The next day, he dies. That policy is part of my taxable estate since I am the owner, so why would the proceeds be paid to someone else's estate.
I can't comment as to the state laws for sure. What I can tell is that I have seen contracts that specifically address this issue. They say that if there is no living beneficiary, the policy gets paid to the owner if living and if the owner is not living, it gets paid to the owner's estate.
Posted: Wed Mar 02, 2011 06:24 pm Post Subject:
You may want to double check this. I believe, but am not certain, that most say that the proceeds are payable to the policy owner. The owner is typically the insured, but not always.
Unfortunately, your statement is factually incorrect. All states have law and rule regarding who receives the death benefits in the event there are no named beneficiaries alive when the insured dies. Most indicate that the estate of the insured will receive the proceeds if there are no living beneficiaries, unless (if allowed) the policy dictates otherwise, and some do.
Regarding your statement that "the owner is typically the insured:" I absolutely disagree with this, in fact, the opposite is true. You do NOT WANT TO BE THE OWNER of the policy covering your own life.
This is referred to as "first-party" ownership- where the policy owner and insured are the same person. In the event of the death of the insured/owner with first-party ownership, the proceeds paid to the beneficiary are now included in the insured's gross estate for tax and probate purposes. THIS IS NOT GOOD!
You want to establish "third-party" ownership- where the owner and insured are different people. This way, when the insured dies, there will no no estate gross-up... period. Unless, of course, the proceeds are payable to the estate as the designated beneficiary.
Ex. I but a policy on Ins Teacher. We're business partner's. I'm the owner and beneficiary. There is no secondary beneficiary. I die. The next day, he dies. That policy is part of my taxable estate since I am the owner, so why would the proceeds be paid to someone else's estate.
Sorry, but this is incorrect, too. If you have purchased a policy on me and I'm the insured- you would be the owner and I would be the insured and you have contractual control of the contract. This is third-party ownership. If you die, there is no taxable effect on your estate. I die the next day and there's no contingent beneficiary. In the absence of policy language that differs, the death benefit will be paid to MY estate- not yours.
InsTeacher 8)
Posted: Wed Mar 02, 2011 08:45 pm Post Subject:
InsTeacher,
I trust that you can admit when you are wrong and I have no problem admitting when I'm wrong. Let's take some time to work through this issue.
I think that you are wrong with your statement that if there is no beneficiary in goes to the estate of the insured. I say that it goes to the estate of the owner. Can you point me to something that shows that you are correct? In my reading, when I see something that says that it goes to the estate of the insured, it seems as if there is an underlying assumption that the owner is the insured. Thanks, because if I'm wrong, I want to know it.
Now, let's look at some more of what you wrote...
Posted: Wed Mar 02, 2011 09:02 pm Post Subject:
Regarding your statement that "the owner is typically the insured:" I absolutely disagree with this, in fact, the opposite is true. You do NOT
WANT TO BE THE OWNER of the policy covering your own life.
First of all, it is a fact that most people are the owners of their own policy. There is nothing to disagree with. As to whether they should be done that way, that is a matter of opinion and can be discussed.
This is referred to as "first-party" ownership- where the policy owner and insured are the same person. In the event of the death of the insured/owner with first-party ownership, the proceeds paid to the beneficiary are now included in the insured's gross estate for tax and probate purposes. THIS IS NOT GOOD!
It’s not good, but that doesn’t mean that it is bad either. First of all, if I’m the owner and the insured of a policy with a named beneficiary other than my estate, it is not a probated asset. Secondly, if my spouse is the beneficiary, we have an unlimited marital deduction. Finally, unless my estate is big enough to have to worry about estate taxes, it isn’t an issue anyway. So, unless we are talking about a situation where estate taxes are likely, there isn’t an issue with this. There are definitely issues with having someone else be the owner. Primarily, the owner has control and they can do what they want.
Ex. Ins Teacher is married with 3 kids. His wife is a stay at home wife. Ins Teacher has been paying the premium on the policy. His wife is the owner. His wife turns out to be a slime bucket. She cashes out the policy and then runs away with the milkman or she keeps the policy and changes the beneficiary to her new husband or… Maybe bad examples, but the point is that if someone isn’t going to be owner of their own policy, there should be a specific reason.
Posted: Wed Mar 02, 2011 09:04 pm Post Subject:
You want to establish "third-party" ownership- where the owner and insured are different people. This way, when the insured dies, there will no no estate gross-up... period. Unless, of course, the proceeds are payable to the estate as the designated beneficiary.
This may be semantics, but isn’t this normally “second-party” ownership? The owner and the beneficiary are the same, but the insured is different. Wouldn’t third party ownership be where the owner, the insured, and the beneficiary are all different?
Posted: Wed Mar 02, 2011 09:24 pm Post Subject:
Sorry, but this is incorrect, too. If you have purchased a policy on me and I'm the insured- you would be the owner and I would be the insured and you have contractual control of the contract. This is third-party ownership. If you die, there is no taxable effect on your estate. I die the next day and there's no contingent beneficiary. In the absence of policy language that differs, the death benefit will be paid to MY estate- not yours.
Ok, let’s look at this. I own a policy. You are the insured. If I die, that policy is absolutely part of my estate. Let’s put big numbers to it. Let’s assume that it is a $10,000,000 policy with a $5,000,0000 cash surrender value. Please explain why you think that the policy would not be part of my estate? In my will, I can state that I want my son to become owner of the policy. If he wanted to do so, he could cash it out for $5,000,000 or keep it in force.
The Goodman Triangle is a good way to illustrate why it would be part of my estate. Let’s assume that I’m the owner and you are the insured and Max is the beneficiary. If you die, you are correct that it is not part of your estate. However, it would be treated as a $10,000,000 gift from me to Max.
Don’t confuse the death benefit proceeds and the policy itself. If the owner dies and isn’t the insured, there is no death benefit, but the policy itself is an asset and it, unlike life insurance proceeds with a named beneficiary is a probated asset.
The bottom line here is that if you can find something that makes it clear that absent a named beneficiary, a policy will get paid to the estate of the insured, even if the insured is a different person than the owner, I would sure like to see that.
I may be wrong becasuse I'm going by logic here, but I'd be surprised.
Posted: Wed Mar 02, 2011 10:01 pm Post Subject:
It’s not good, but that doesn’t mean that it is bad either. First of all, if I’m the owner and the insured of a policy with a named beneficiary other than my estate, it is not a probated asset.
Wrong. If you are both the owner AND the insured, whatever is actually paid to the beneficiary will gross up the estate of the dead insured/owner. Please note the following (cited from investopedia.com):
Section 2042 of the Internal Revenue Code states that the value of life insurance proceeds insuring your life are included in your gross estate if the proceeds are payable: (1) to your estate, either directly or indirectly; or (2) to named beneficiaries, if you possessed any incidents of ownership (we'll discuss this more below) in the policy at the time of your death.
So, Section 2042 of the IRC says:
Search 26 U.S.C. § 2042 : US Code - Section 2042: Proceeds of life insurance:
The value of the gross estate shall include the value of all
property -
(1) Receivable by the executor:
To the extent of the amount receivable by the executor as insurance under policies on the life of the decedent.
(2) Receivable by other beneficiaries:
To the extent of the amount receivable by all other beneficiaries as insurance under policies on the life of the decedent with respect to which the decedent possessed at his death any of the incidents of ownership, exercisable either alone or in conjunction with any other person.
So, if you own the coverage on your own life, or have transferred ownership (in full or in part) within 3 years prior to your death, the proceeds WILL be included in the insured's gross estate values.
I NEVER said it would result in a taxable estate- I only said that it will increase the gross estate values and probate costs.
The "second party" to this transaction is the insurer- they just issue the policy. As to the statement that most life insurance is owned by the insured... show me statistics. You voice a concern that I'm not bringing citations and examples to the table... some are included within this post that show that my assertion is correct, unless the IRS is wrong.
So...what'cha got??
InsTeacher 8)
Posted: Thu Mar 03, 2011 12:18 am Post Subject:
What I've got is that I know that you are an intelligent guy, so I am going to assume that you had a temporary brain fart.
I agreed with you that if the owner and the insured are the same person, it will be part of the owner's estate. I know that you never said that it would be taxable.
The part where you are wrong concerns probate. Notice that nothing that you quoted says anything about probate.
Assets that pass to another via beneficiary designations bypass probate. Ex. Judy dies. Her only assets are $300,000 in a checking account, $2,000,000 in an IRA with her sister as beneficiary, and $1,000,000 in life insurance with her brother as the beneficiary. The value of her estate at death is $3.3 million, but only $300,000 goes through probate.
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