AD Banker Comprehensive Practice Exam

What is the best way to avoid life insurance proceeds going through probate?

1. List a primary and contingent beneficiary

2. Name the estate as beneficiary

3. Have a current will

4. File a trust with the County court

The correct answer is: List a primary and contingent beneficiary

The most effective strategy for preventing life insurance proceeds from going through probate involves designating a primary and contingent beneficiary. When a policyholder names specific individuals as beneficiaries, the life insurance company directly pays out the death benefit to those individuals upon the policyholder's death. This circumvents the probate process entirely, allowing for quicker access to funds for the beneficiaries. Naming the estate as the beneficiary, on the other hand, would subject the life insurance proceeds to probate. This can lead to delays and potential legal complications as the proceeds would be distributed according to the terms of the will or state law, rather than being directly accessible to the intended recipients. Having a current will does help with the distribution of assets upon death, but it does not affect life insurance proceeds specifically. Since the insurance payout is governed by beneficiary designations rather than the will, any designation of beneficiaries in a will does not apply to life insurance policies. Similarly, filing a trust with the County court involves a separate legal process that does not inherently address the issue of life insurance proceeds. While using a trust can assist in managing certain assets and may provide some advantages in estate planning, it is not essential for avoiding probate on life insurance proceeds as direct beneficiary designations are sufficient to achieve that goal.