Do insurance policies bypass estate assets?

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Do insurance policies bypass estate assets?

My wife’s uncle passed away. He did not have much, not enough money to pay off his credit card bill of $3k. However, he had an insurance policy that had his niece’s as beneficiaries. Is this still considered his estate or does it bypass his estate? If the insurance policy bypasses his estate, then his last bills/debt will go unpaid. I’m glad he took care of his funeral expenses upfront. He left me with power of attorney and I need to know, so I can approach the beneficiaries to pay his last debts.

Asked on December 19, 2011 under Estate Planning, California

Answers:

M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

Those people who are designated beneficiaries of a life insurance policy are under no duty to split the proceeds with anyone (this is even true if there is a Will that provides otherwise). The reason is that these proceeds pass outside of a deceased's estate. And heirs are only entitled to items that are part of the estate. Since a life insurance policy is not one of them, the proceeds would pass directly to the designated beneficiary as their sole and separate property.

To the extent that there are no assets left with which to pay of the creditor's of the estate, those debts will extinguish as a matter of law. In other words, they will be written of by the creditors.


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