The fact that some assets do not go through probate probably gives you some peace of mind. Insurance policies are a prime example. However, there are instances where insurance, such as a life insurance policy, could end up in probate in spite of your hopes.
To understand why insurance could fall under the jurisdiction of a probate court, you should first know why your insurance policy generally does not go into probate to begin with.
How insurance policies avoid probate
Insurance policies have designated beneficiaries. When you purchase a life insurance policy, you name one or more individuals who will receive the death benefit payout directly after you die. Since this transfer occurs outside of probate, the funds can reach beneficiaries quickly.
When insurance goes through probate
If the beneficiary of a life insurance policy dies before you do and there is no backup beneficiary named, the policy proceeds may become part of your probate estate. In this situation, the life insurance payout becomes subject to the probate process, and will pass to heirs designated by your will or by Arkansas intestacy law if you have not composed a will.
Pitfalls of probate oversight
Having a life insurance policy go through probate can create several issues. The probate process can be lengthy, delaying the distribution of the funds to your heirs. Additionally, creditors may be able to make claims against the probate estate. You could lose some or even all of your policy payout to satisfy debts.
Safeguarding insurance policies from probate
To ensure that your life insurance policy avoids probate, you may name backup beneficiaries to receive the payout if the primary beneficiary predeceases you. You can also name co-beneficiaries to receive a portion of the payout, ensuring that somebody is on the policy to acquire the proceeds even if another beneficiary has died.
By understanding the potential pitfalls of life insurance policies going through probate, you can take proactive steps to safeguard the inheritance of your intended beneficiaries.