Life insurance death benefits are usually exempt from the probate process, although there are exceptions. Generally, if an asset is not included in a deceased's probate estate, it's not vulnerable to his creditors. But in some cases, debt-collection laws can trump probate laws and leave a widow or widower vulnerable to a spouse's debt collectors.
Debts and Probate
When someone dies and he has left a will, the will's executor is responsible for notifying his creditors that he has passed away and that his estate is now responsible for his debts. The creditors can submit documentation supporting those debts and ask for payment. If the debts are valid, the executor pays them from estate funds, either with cash the deceased left or by liquidating other assets. If there's not enough money from these sources to pay the deceased's debts, the estate is insolvent. Secured creditors receive payment first, so unsecured creditors might not receive payment at all.
Policy Beneficiary
The executor of an estate usually does not have access to life insurance proceeds to pay the deceased's debts, because they're not part of the probate process or her estate. A policy is a contract between its owner and the insurance company. When the insured passes away, the company pays the beneficiary named on the policy. If the named beneficiary was the deceased's spouse, the insurance company would pay him the proceeds directly, bypassing the estate. If the money never becomes part of the estate, then creditors can't make a claim against it for payment.
Joint Debts
An exception occurs if a surviving spouse is a cosigner on any of the deceased's debts. These creditors can't seize the deceased's life insurance death benefits directly, but they can look to one cosigner for payment after the other cosigner passes away. Once a surviving spouse has collected the insurance proceeds, the funds become her asset. Since she is also responsible for paying off joint debts, a creditor could sue her for the balance owed if she doesn't continue making payments after her spouse dies. If the creditor is successful in getting a judgment against her, it can levy against assets she holds for payment in most states.
Tips
If the deceased names his estate as the beneficiary of his life insurance policy, the estate will receive the death benefits. The executor of his will would have to use the proceeds to pay his creditors, even if the deceased intended that the money go to his surviving spouse. If an estate is insolvent, the beneficiaries generally do not receive anything, so if the estate doesn't have enough money to pay everyone, the surviving spouse might not receive any of the death benefits. However, estate laws in some states provide for immediate survivor's benefits to a spouse, a portion of the estate payable to her before the executor pays any debts, so she might not lose the benefits entirely.
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