Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: My client is the insured under a life insurance policy owned by her mother.  Her mother recently passed away.  Does the policy now belong to my client?

Answer: Not necessarily.

When a third party owns a life policy, the insured has no ownership rights in the contract.  At the death of the owner, the policy transfers to the contingent owner, if one is named.

If there is no named contingent owner, the policy becomes an asset of the deceased owner’s estate.  The successor owner will be the person identified in the decedent’s will (if there is one) or by the intestate laws of the state of the decedent’s residence at the time of death.

The process for changing ownership when the policy is an estate asset is the probate process.  Probate is a highly structured court proceeding under which a judge supervises the transfer process.

Because of the costs and inconvenience associated with probate, we highly recommend that third party owners of life policies consider naming contingent owners for the policy.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.