The Designated Beneficiary Can Be Your Estate

Ensure your final debts can be paid by naming your estate as beneficiary of an insurance policy.
The Designated Beneficiary Can Be Your Estate
FILE PHOTO: BG Michael Tucker (L) looks at SSG John Francisco III (R) after awarding him the Purple Heart during a Purple Heart ceremony at Walter Reed Army Medical Center April 27, 2007 in Washington, DC. (Brendan Smialowski/Getty Images)

Often times when we establish various types of financial accounts and insurance policies, we are prompted to name beneficiaries. In addition, these types of financial instruments with designated beneficiaries help you to avoid the probate process.

In deciding who to name as a beneficiary, consider whether or not there will be sufficient funds left in your estate to pay final costs after you are gone. For example, when a will is prepared in which certain people are bequeathed sums of money or property, the executor or personal representative is required to first pay off any final debts with the accessible cash and property of the estate before making the distributions to the beneficiaries of the Will. These expenses can include attorney’s fees, accounting fees, burial arrangements, executor’s fee, etc.

Therefore, if the debts are significant, the cash may be depleted and the property may have to be sold in order to pay off all of the debts, which could result in the beneficiaries not receiving any distribution or a much smaller distribution than expected.

On the other hand, if one of the beneficiaries is named in an insurance policy, the proceeds go directly to the beneficiary, who has no obligation to contribute any part of it to the debts of the estate. This is certainly a great arrangement for some beneficiaries, but it can greatly impact the beneficiaries of the Will if the estate is not large enough to pay off all of the debts.

If you have a small estate, consider naming the estate as the beneficiary of the insurance policy and other financial accounts. Under this scenario, all of the proceeds would be added to the estate and can be used to pay off debt without significantly impacting the beneficiaries or burdening your personal representative. The final accounting may still be reduced but at least the beneficiaries have a chance to feel that they are being treated equally.

For assistance in managing your estate, contact an attorney in your local community.

Information contained in this article is not intended to be legal advice nor applicable to all situations. For legal assistance, contact an attorney in your state of residence. You can visit Arleen’s website at

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