by jgosior » Thu Jan 19, 2012 02:42 pm
My husband died and is owner on life insurance policies for both our sons. Who will be the owner of these policies now -- the children or me (wife and mother). The beneficiaries named were my husband and I. My children don't value life lnsurance and would cash them in. I am in Canada.
Posted: Thu Jan 19, 2012 03:53 pm Post Subject:
I’m confused, who exactly owns the policy? Who is named as the insured on the policy? Your husband or your sons? If it is your sons, legally they are allowed to do anything they want with the policy and that includes surrendering it for the cash value. Your husband couldn’t have been the owner as well as the beneficiary of the policy as well, insurance companies won’t write such policies unless the death benefit is paid directly into a trust.
Posted: Fri Jan 20, 2012 02:28 am Post Subject:
My husband is owner of the policy for our two sons since they were infants when the policies were taken out. My husband and I are named as beneficiaries. As the sole beneficiary of his estate, will I (his wife) become owner of the policies or will it be my sons?
Posted: Fri Jan 20, 2012 04:49 pm Post Subject:
Your husband might have paid for the policy but technically speaking, he isn’t the owner of the policy. The owner of the policy is the one who is named as the insured. Since in this case, you and your husband are beneficiaries then your sons are the insured. Even though you are the sole beneficiary of your late husband’s estate, you cannot gain ownership of the policies since they belong to your sons. Are your sons still minors?
Posted: Sat Jan 21, 2012 12:43 am Post Subject:
OK, I have to re-state and correct a couple of things here...
Let's start with this:
Your husband might have paid for the policy but technically speaking, he isn’t the owner of the policy. The owner of the policy is the one who is named as the insured.
No. The owner of the policy can easily be a person different from the person(s) insured under the policy. This is referred to as "third-party" ownership. Your husband could have easily been the owner, and likely was, if the policy was purchased on a minor child. The kid(s) are just the insured persons. This is often done when there are estate planning concerns but really doesn't apply for this conversation.
The owner of the policy controls the contract and has the right to name and change beneficiaries and a host of other rights. If the owner and insured were the SAME person, that's called "first-party" ownership and that person would, as the owner, have all rights of ownership.
If the owner of a third-party owned life insurance policy dies (the insureds are still alive), that ownership (in most jurisdictions) is considered a tangible piece of property and can actually be willed to another. In the absence of a will directing ownership of the policy upon death of the policyowner, it will normally fall to your state's distribution laws. Typically, that would be the widow(er).
So, there's a likely chance that you will become owner of the policy. Have you retained any estate representation, like an estate attorney or CPA? There's likely some additional information they should be able to provide in your state.
Now this:
Even though you are the sole beneficiary of your late husband’s estate, you cannot gain ownership of the policies since they belong to your sons.
Sorry, not quite right. She can, again depending on the state of residence and the other issues brought up earlier in this post, become the owner of the policies. Stress the word "can," not WILL.
To the OP- don't sit on this... it's likely premiums must be paid to keep the coverage in force. Call the agent and at least make sure the premium is getting paid. The owner is technically responsible for the premium payments, but frankly- the insurer doesn't care who makes the payment.
InsTeacher 8)
Posted: Mon Jan 23, 2012 04:12 pm Post Subject:
InsTeacher - Thanks for clearing up my doubts and correcting my mistakes. Appreciate it :)
Posted: Mon Jan 23, 2012 10:09 pm Post Subject:
I'll just echo what Ins teacher said. The owner of a policy can easily be the beneficiary. This is common.
The policies do not belong to the sons. Let me rephrase that. They might, but this is not necessarily the case. These policies are part of the owner's estate.
Keep in mind that the death benefit of a policy with a named beneficiary is not part of the probatable estate and goes directly to the beneficiary. However, we aren't talking about a death benefit. We are talking about the actual policy.
The policy is part of the owner's probatable estate. As such, it is possible that his wife will become the new owner. It is also possible that the child will become the new owner.
Posted: Tue Jan 24, 2012 07:11 am Post Subject:
Always start with the language of the contract, then accept any requirements of state law. If the contract conflicts with state law, state law will prevail.
One must look to the language of the contract to see how the third-party owner's death is handled. Some contracts transfer ownership to the estate, some transfer ownership to the insured.
However, if the insureds are minors, then the operation of state law will prevent them from obtaining direct ownership until they reach the age of majority, and the policies will have to be held in trust until then.
Third-party ownership of life insurance, as in this instance, demonstrates the potential for unintended consequences that could be resolved with sound legal advice obtained well in advance.
Posted: Tue Jan 24, 2012 11:20 am Post Subject:
I'm curious. In this case, if the sons aren't minors and they choose to contest the ownership of the policy, is it more likely that they as the insured, has a substantial claim of ownership?
Posted: Tue Jan 24, 2012 04:50 pm Post Subject:
is it more likely that they as the insured, has a substantial claim of ownership?
Insureds have no greater (or substantial) claim to a policy than any other party when life insurance is owned by a third party. The matter is simply governed under contract law, and in this case, state probate law may also be involved.
The only "claim of ownership" anyone has is that conferred by the policy's language. If the policy says "In the event of the owner's death precedent to that of the insured, the insured will be the owner of the policy" (or words to that effect), then the adult children become the policyowners of their respective policies. If the policy says, "In the event of the owner's death precedent to that of the insured, the owner's estate will be the owner of the policy" then that's what happens. From that point, it would be up to the estate to assign or sell the ownership of the policies in question. The policies could be assigned to the adult children as a portion of the division of the estate (generally on the basis of their present cash value, not the value of the death benefit), the adult children could purchase them from the estate, or the estate could sell them to a life settlement provider if one were interested.
No one can "contest" the ownership of the policy according to the language of the contract unless the contract language violates state law, which is highly unlikely. A contest arising out of the will is a different matter:
The policy is part of the owner's probatable estate.
Our friend fafm makes an important observation. Life insurance PROCEEDS are described as a "nonprobatable asset". The policy itself is "owned property", and for estate tax purposes, the value of those proceeds are attributed to the owner's estate for estate tax purposes. But this post describes an entirely different situation, since the insured(s) did not die. If the decedent left a will or a testamentary trust, that document will have something to say as well.
To the policyowner, the value of a life insurance policy is part of his "probatable estate" -- it is his property. In community property states, community property generally transfers to a surviving spouse under the operation of state law. Although paid for with community assets, life insurance is a contract, and the language of the contract is the only thing that matters. It will either transfer the "property right of ownership" of the policy (1) to the decedent's estate or (2) to the insured. I have never seen a third option described in a life insurance contract. If it transfers to the estate, either the will/trust will settle the matter or state probate law will.
When minors are involved in the distribution of property, the matter is not changed, only more complicated and probate law will address that issue if the contract transfers the ownership to the children. The policies will have to be preserved until the children reach majority. So estate assets could have to be set aside to pay the premiums if there were no "Waiver of Premium Payor" benefit/rider in the contract, as there should have been.
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