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If you own life insurance on your own life, you may either:
(a) designate one or more beneficiaries to receive the insurance
proceeds upon your death, or
(b) make the proceeds payable to your probate estate or to a trust
created by you during your lifetime or by your will.
If the insurance proceeds are payable to your estate, they will be
distributed as part of the general estate in accordance with the
terms of your will or, if you die without a will, the distribution
will be according to the applicable laws of interstate succession.
If the proceeds are payable to a trust, they will be held and
distributed in the same manner as other trust assets and may also be
free of creditors' claims. Insurance proceeds that are payable
directly to a minor child will generally necessitate the court
appointment of a legal guardian or conservator. This can be avoided
by having a trust designated as beneficiary or a custodial account
under the state-transfers-to-minors law.
Insurance plays an important role in estate planning and should be
coordinated with all other aspects of your estate plan. The laws
pertaining to the taxability of insurance proceeds are complex,
however, so it is important that all matters pertaining to life
insurance be carefully reviewed with your attorney and insurance
advisor.
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