When planning for the future, understanding how life insurance policies are handled after death is crucial. One of the most common questions people ask is whether life insurance proceeds must go through probate in California. The answer depends on several factors, including the named beneficiaries and how the policy is structured. Below, we break down when life insurance policies do and do not go through probate in California.
When Life Insurance Proceeds Do Not Go Through Probate
Most life insurance policies avoid probate, meaning the proceeds are paid directly to the beneficiary without court involvement. Here are the key situations where this applies:
- A Named Beneficiary is Alive and Valid – If the policyholder designates a specific person (such as a spouse, child, or another individual) as the beneficiary, the insurance company pays them directly, avoiding probate entirely.
- Trust as a Beneficiary – Naming a living trust as the beneficiary ensures the proceeds bypass probate and are distributed according to the trust’s terms.
- Joint Ownership with Rights of Survivorship – If the policy is jointly owned with a survivorship clause, the surviving owner receives the payout without probate.
When Life Insurance Proceeds Do Go Through Probate
Although life insurance usually avoids probate, there are instances where the proceeds may become part of the estate and require probate proceedings:
- No Beneficiary Named – If the policyholder fails to designate a beneficiary or the named beneficiary has passed away and no contingent beneficiary is listed, the death benefit becomes part of the estate and is subject to probate.
- Estate Named as Beneficiary – If the policyholder designates their estate as the beneficiary, the proceeds must go through probate, where they are used to pay debts before distribution according to the will (or state intestacy laws if there is no will).
- Beneficiary is a Minor – If the named beneficiary is a minor, the court may require probate involvement to appoint a guardian or trustee to manage the funds until the minor reaches legal age.
How to Ensure Life Insurance Avoids Probate
To make sure your life insurance policy does not go through probate in California, consider these steps:
- Keep Beneficiaries Updated – Regularly review and update your life insurance beneficiary designations, especially after major life events like marriage, divorce, or the birth of a child.
- Name Contingent Beneficiaries – If your primary beneficiary passes away, having a contingent (backup) beneficiary prevents the proceeds from going into probate.
- Consider a Trust – Naming a trust as the beneficiary can provide more control over how and when the proceeds are distributed, especially in cases involving minors or beneficiaries with special needs.
- Avoid Naming Your Estate – Unless necessary for a specific financial strategy, avoid listing your estate as the beneficiary to keep the proceeds out of probate.
Final Thoughts
In most cases, life insurance policies in California do not go through probate when a designated beneficiary is named. However, if a policyholder fails to list a valid beneficiary or names their estate, the proceeds may be subject to probate, delaying distribution and exposing the funds to potential claims from creditors. Proper planning and regularly reviewing your policy can help ensure your loved ones receive the intended benefits without legal hurdles.
Do you need help structuring your life insurance policy to avoid probate? Contact an experienced insurance professional or estate planner to secure your family’s financial future.