What happens to life insurance during probate?
When someone passes away, you will usually need probate to settle their estate.
Key takeaways
Probate is a legal process to deal with the money, property and assets of someone who has passed away.
The probate process is easier if there is a will in place.
Executors named in the will are usually responsible for probate.
Life insurance in a trust with a named beneficiary won’t normally have to go through probate.
What is probate?
When someone dies, their assets such as their property, money, and possessions must be sold or transferred, their debts settled and what's left paid to their beneficiaries. This process is known as probate.
Probate ensures that financial affairs are settled as per the deceased's persons wishes in their will. If there is not a valid will in place, the ‘rules of intestacy’ determine who is responsible for probate and who is entitled to inherit.
During probate, several legal steps are necessary. These include validating the will, appraising any property, and paying debts and inheritance tax (IHT). Finally, the remaining assets are distributed to the rightful heirs.
Probate plays a crucial role in preventing legal disputes among family members and beneficiaries. It also ensures that all financial obligations are met before closing the estate.
How does probate work?
Determine if probate is needed
Not every estate needs probate. For example, if the deceased person owned property and assets jointly with a spouse, everything transfers to them automatically.
Apply for probate
This can be done online or by post. You’ll need to send the original will with your probate application, as well as a death certificate.
Only certain people can apply for probate. This will be the executors named in a will or, in the absence of a will, the closest living relative.
Value the estate
The executor assesses the estate's value, including property, money, and possessions.
Pay debts and taxes
The executor ensures all debts, bills, and taxes are paid. This may involve settling loans or utility bills.
Distribute assets
After clearing all debts, the remaining assets are distributed to the beneficiaries as outlined in the will.
Resolve any challenges
Common challenges include disputes over the will and claims against the estate. These are usually resolved through legal advice and negotiations.
Who is responsible for probate?
When someone dies, their estate undergoes a legal process called probate. The key figures in this process are the executors and administrators.
Executors will be appointed in the will. They are tasked with executing the deceased's wishes. There can be up to four people named as executors and they will usually be a partner, family members or close friends. In some cases the executor could be a solicitor or a financial institution (but this can be expensive).
If no will exists, or no executor is specified, an administrator is appointed. This will usually be the next of kin who has completed the process of obtaining a Letter of Administration (LOA).
The executor or administrator is responsible for collecting the deceased's assets, settling debts, and distributing the remaining assets according to the will or law.
Selecting an appropriate person for probate duties is crucial. This role demands people who are trustworthy and capable of managing financial affairs and complex paperwork. Often, people choose close family members or professional advisors to manage the process efficiently and honour the deceased's wishes.
How do you apply for probate?
Applying for probate involves several clear steps.
First, register the death. You should do this within five days via a register office.
You should then collate the relevant paperwork. This will include the original will, the death certificate, and details of the deceased's assets and debts.
You’ll need to value the estate and work out if inheritance tax (IHT) is due. The gov.uk calculator can help you work this out. If IHT is due, you might need to pay some of it before probate is granted, but this can be claimed back from the estate if you used your own money.
Then you can complete the probate application form. This form is available online at the Gov.uk website or from your local Probate Registry office. Alternatively you can pay a solicitor to do it on your behalf.
How much does it cost to get probate?
Probate fees are primarily determined by the value of the estate.
In England and Wales, if the estate is valued at more than £5,000, the application fee is £300 (as of December 2024).
There’s no fee if the estate is worth £5,000 or less.
You may be able to get state help to pay the probate fee and other court fees if you have a low income or are on certain benefits.
During the probate process, additional costs can emerge. These include legal advice fees, valuation costs for property and other assets, and potential court fees if disputes arise.
Death certificates cost £12.50 each. You can order multiple copies of the certificate on the registration appointment booking form. You might need extra copies to send to various banks and other financial institutions.
Expenses can vary widely depending on the complexity of the estate and the necessity for professional services. If you need a solicitor, get quotes from multiple solicitors for comparison.
What happens to life insurance during probate?
There are various ways to find out if a deceased person had life insurance.
In the UK, life insurance payouts may be included in a deceased person’s estate for inheritance tax (IHT) purposes. However, if the life insurance policy is put in a trust or has a named beneficiary or beneficiaries, then any payout isn’t generally included as part of your estate. That means it can bypass the probate process. This direct transfer simplifies asset distribution and accelerates how quickly the insurance payout is available to your beneficiaries, aiding in immediate post-death expenses.
If no beneficiary is named, or if the estate itself is the beneficiary, the proceeds must undergo probate. This means the funds are used first to settle any debts and liabilities and could potentially be liable to IHT. Only then is any remaining amount distributed to heirs.
Naming a beneficiary ensures a clear route for the life insurance proceeds. It helps prevent disputes among heirs and ensures the policyholder's wishes are honoured. This strategic choice not only streamlines the probate process but also offers peace of mind, knowing that loved ones face fewer legal obstacles.
Read more about life insurance and inheritance tax.
