My wife and I each have a life insurance policy, with each other listed as the beneficiary.
I’m sure this is in the fine print, but not wanting to dig through paperwork, I figured I’d ask here for a generally applicable answer:
What happens if we both die together, e.g. in a plane or car crash? Do our policies pay out to the estates of the deceased beneficiaries, or do they not pay out at all since the beneficiary is deceased?
Can a claim be filed on behalf of a deceased beneficiary (by, e.g. the executor of a will)?
There’s also a legal / probate concept called “common disaster” which deals with these sorts of situations. The details vary by jurisdiction, but at least now you’ve got some terms to google.
The “common disaster” logic can also be triggered for scenarios like you’re both in the same car accident, one is killed immediately, and the other dies 2 weeks later of the accident’s injuries.
Bottom line for estate planning: every significant asset you own should have a defined beneficiary (typically one’s spouse), and a defined secondary beneficiary, typically a trust or other non-spouse relatives. Spend the time, attention, and $ to get this right. Your heirs will thank you more than you will ever know.
I recall reading that at common law, if the order of deaths can not be determined (e.g. plane crash), and it matters to the way the inheritance pans out, it is assumed that whoever was older died first. So if you are older than your wife, under that scheme, your wife would be judged to have inherited everything from you for a split second before passing it on herself (which especially matters if your heirs and her heirs are different).
Whatever else happens this does not. In all insurance policies I’ve seen, if all the named beneficiaries are deceased, the payout goes to either the insured’s estate or the policy owner (or estate). Often the insured and owner are the same person. Of course someone typically has to contact the insurance company and inform them of the death. They do not get an automatic notice.
It would be unusual for someone not of the obvious close relation to be the owner of a policy … in fact in this state its illegal.
To split the question up … there’s a smaller question … the will says " I leave all my property and cash to Mr XYZ" and gives no second option", and Mr XYZ is now dead, then what ? Well its like there is no will … then its “intestate” … like there was no will. There’s rules for that in your jurisdiction…
One solution to common disaster that I read , I guess for my state, is that if the couple die together and its unclear who died first, its assumed the oldest that is said to have died first. What this means is that if Mrs X is older, she leaves everything to her dear husband, Mr X… assuming that he would then leave everything to their children… Now Mr X has a secret will that says he leaves everything to his lover and the children there, which are actually his children. So Mrs X’s children get NOTHING… ZERO in this order. See how order matters ? If Mr X dies first, then his will only affects half of the estate, and Mrs X’s children can inherit her half of the estate.
However, many wills of a married couple do handle the case of dying closely together in time, and define close as being n months, eg 6 months, and override state rules. Generally the two wills will have the same instructions in that case, and its as if they are one will.
In real life I am confident that this would have to be fought out in court. If the children are under 18 or otherwise dependant, they would have an unquestionable claim on the estate, whatever the will might say.
Many wills are “secret” so this isn’t unusual or somehow foreboding in itself. And yes the wife would most likely sue and use the support of the minor children as the reason why she should collect. But if the will is written correctly she would very likely lose since the other children are also his. But if the kids are in the United States they will all most likely recive social security survivors benefits; all of them.
We’re straying now into wills. IANAL, but from what I’ve read…
If the dead parent deliberately cuts off one family (“I leave my children of Barbara nothing”) then the will is hard to contest; but if he fails to mention them in the will then it should be easy to contest (forgot? Not of sound mind when he made it?) The question is, did he mean to do so?
If he’s sharing a house, there are pretty good odds the spouse in the house can get at least a lifetime claim to it. Laws and precedents vary by location.
But insurance is not a house. I’ve seen the opposite case, where a fellow lived with his “girlfriend” for 10 years, but never went through the paperwork and never divorced. The beneficiary on his company pension was never changed, and so his wife was designated to receive his survivor pension; same idea as an insurance policy - you specify the beneficiary. (It got ugly - apparently the kids came and tried to take “their” boat and stuff and demanded she get out of “their” house.)
Similarly with insurance - you pay a specific person, as designated in the policy. If that person dies before payment is received, it would obvious go to their estate. Not sure if there is a “common disaster” clause, but unless the beneficiary died much earlier, there’s still an active estate that can be paid. (Unless there’s a common disaster clause in the policy?)
My mother’s will for example, said something like “If my husband survives me by one week, half to husband, half to children. Otherwise, all to children.” apparently these clauses are typical in mixed families to prevent the “A lived an hour longer than B” scenario when B’s children get nothing, A’s children get it all. One week was presumed to be a reasonable cut-off between surviving and dying an little later.
In most US jurisdictions, you are free to disinherit whoever you like. However, a living spouse normally gets to claim an “elective share” if the spouse is unhappy with the provision made in the will. In Florida, the elective share is roughly a third of the estate (though it’s a bit more complicated than that because it takes things like life insurance into account, even though they are not part of the estate.) Also, any disinherited lineal descendants would inherit a share of any property you failed to account for through intestacy.
According to the link I posted earlier, though, in most US states, this common law behaviour has been superseded by statute so that if two people die within five days of each other, and the case is not covered explicitly by the will, both are considered to have predeceased the other.
So Mrs. X’s will gets executed assuming that Mr. X is dead, and assuming it contains language like “to Mr. X, or if he is dead our children”, it goes to the children. Mr. X’s will gets executed assuming Mrs. X is dead, which doesn’t matter because it was going to his lover anyway.
So in the case where Mrs. X had no will, and Mr. X’s will left everything to his lover, Mr X’s assets go to his lover, Mrs. X’s assets to next in line to inherit after her husband (her children, I’d presume), and their joint assets are split between the two groups?
So my daughter and I are in a car accident, and I am killed instantly, and she dies on the way to the hospital. My will leaves everything to her, and her will leaves everything to her son.
Under normal circumstances, when I die, the tax man gets his cut of my estate, if its big enough.
Does my grandson’s inheritance get taxed twice in this scenario? In other words: does the inheritance tax get levied on my estate, and then again on my daughter’s estate, as it would if we died ten years apart? Or is this considered “close enough” to be considered a single event and we are treated as though we both died at once?
ETA: Well, let that be a lesson to me. The very next tab, on which I had opened the Uniform Simultaneous Death wiki page, answers the question. Up to 120 hours apart is considered simultaneous.
This is not quite your question, but it is related: There is a little-known tax in the United States called the Generation-Skipping Transfer Tax (GST). This tax applies in addition to the estate or gift tax when you try to transfer property (either by gift or inheritance) to a grandchild or later generation or to an unrelated person more than 37.5 years younger than you are.
Generally, if the amount is large enough and you try to skip a generation by leaving property to someone two or more generations younger than yourself, the GST applies. The law contains an exception if your child is dead and you leave your property to your grandchild. Tax Regulations (Treas Reg §26.2651-1(a)(2)(iii)) contain a special 90 day rule: If your child dies within 90 days of your death, they are considered to have predeceased you for GST purposes.
The “gotcha” I recall about wills - if the person’s will specifically fails to mention persons with a claim on the estate (wife, children?) then it can be contested fairly easily - i.e. the person was not of sound mind and forgot, etc. If the will specifically says “I leave nothing to that ungrateful wretch Fred my son” it’s not easy to contest since the person specifically considered and excluded someone who would be an heir in intestacy.
“He died intestate.”
“Ooh, sounds painful.”
My wife and I had some estate planning done with an attorney. He suggested that we list “the estate of the deceased” as the beneficiary (rather than name a beneficiary) in our life insurance policies. That eliminates some of the possible problems with order of death and subsequent estate issues, and the life insurance becomes part of the estate to be distributed according to the will.
I’m curious if this makes sense to any lawyers out there, or if anyone else has run into this advise.
In some jurisdictions, that could subject the life insurance proceeds to double taxation. But otherwise it’s fine - and would be helpful if you later have a child (or spouse) but forget or fail to update your will before dying. In most jurisdictions this is called a “pretermitted child/spouse” and the court will infer that you intended to make provision for that child.* That means that kid will get a share of whatever is left to your other kids (or that your new spouse will get what was left to your old one.) The pretermission statutes don’t apply to life insurance, however, since that’s a contract between you and the insurer. So your ex could wind up with your life insurance proceeds.
*If you do update your will after the birth/marriage and still don’t make provision for the new kid/spouse, the court will assume you intended to exclude that kid/spouse.
If, at one extreme, you plan to die with an estate that will be subject to estate taxes, the life insurance proceeds are considered part of your gross estate for estate tax purposes if you own the policy, regardless of whether the beneficiary is your estate or anyone else. There is an unlimited estate tax exemption for transfers to your spouse.
You can avoid the estate tax by either making someone else (perhaps the intended beneficiary) the owner of the policy. However, the option is irrevocable: you will no longer be able to change the beneficiary or prevent the new owner from cashing in the policy. You can also avoid the estate tax by setting up an irrevocable life insurance trust. But the legal fees and ongoing administration fees can be expensive.
At the other extreme, if you plan to die in debt, making your estate the beneficiary will make the proceeds of the policy available to your creditors to settle your debts. You may have hoped that the policy would help your spouse pay the mortgage or your kids pay for school, but your creditors will get paid first.
Also, your estate will need to be probated. Many people try to avoid this by using living trusts or by naming someone (their spouse or children) as joint owners with right of survivorship or as payable-on-death beneficiaries of all their significant assets. This will dump all the insurance proceeds into your probate estate and you will have to do whatever the state requires to settle the estate.
And remember that most estate administrators charge a percentage of the estate’s assets as their fee. If the insurance proceeds pass through your estate, that increases the fee.
And it will also delay payment to your heirs. You may have wished that your spouse use the proceeds to pay the mortgage or your child use the proceeds to pay for tuition. But they are going to have to wait until the estate is settled in order to get any money.
And I have neglected any consideration of state inheritance and/or estate taxes.