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The relationship between heirs, life insurance and probate

Almost all Michigan residents have probably heard about the importance of having estate planning documents prepared before the end of their life. These documents let your loved ones know how to divide your assets. In some cases, they can also lay out the plan for your end of life care. When most people start to consider the assets they need to include as part of the estate plan, which may include a will, trusts, powers of attorneys and other documents, they list items like real estate and bank accounts. While those are important parts of the estate, people should also consider life insurance policies when they create estate planning documents.

For many life insurance policies, there is a beneficiary listed on the policy. When this is the case, the money from the policy goes to the beneficiary listed on the policy. It will not be included in probate for the estate, even if the beneficiary isn't listed in the will.

By listing a beneficiary on the life insurance policy, you effectively bypass the probate process for the funds. This means that the beneficiary won't have to deal with the time or expense of going through the court to get the funds. It also means that the beneficiary won't have to worry about the funds being contested if other heirs don't agree with your beneficiary choice.

There are some instances in which the life insurance policy funds will be included in probate. These can have a significant impact on your estate. If the policy insures only the testator and is payable to the estate, it will be included in the probate. Another instance in which a life insurance policy is included in probate is when the policy insures someone other than the testator. The estimated cash value of the policy is then considered part of the probate estate.

Estate planning can get complex in some instances. Because of this, you should get any questions you have answered prior to signing these documents.

Source: Cincinnati.com, "How the probate process affects life insurance" J. Brendan Ryan, May. 09, 2014

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