Question about insurance payout, probate and the deceased's estate

[cottagegardenflower]

Does an insurance policy with no named beneficiary, which has been awarded by the insurance company's trustees to the deceased's husband, have to be paid back into the estate. The trustees of prudential have decided to award the payout to the husband and not to the adult children of the deceased, even though the will favours them in the division of property (owned by the wife outright) with the husband having a life interest in the property.

So they have ignored what the will says and have decided the next of kin takes precedent over the will and the adult children, as I see it.

The will states all the remaining cash in the estate goes the husband and adult children in equal division.

The husband has now received this money into his account. Does he need to pay it back into the estate, or does it fall outside the estate.

I can only assume that with no named beneficiary, which is odd as they normally request that, the payout will be to the next of kin.

The payout from the policy would not normally go to the individuals in a Will. The Will deals with assets or monies owned by the deceased which is not the same as monies paid out after a death.

Naming a beneficiary is only a preference, not an absolute given.
The decision on who the payment is made to is down to the life insurance company trustees.
They have to consider the dependants of the deceased in reaching their decision.

I think I'd be seeking legal advice on this, whichever side I was on.

Insurance and death in service falls outside the estate, the deceased could have fill in a wishes form but the trustees can override that in some circumstances

I’d imagine the deceased filled in the expression of wishes form, naming their spouse as the recipient of their life insurance. It’s not relevant what the will says, as the life insurance is outside the estate.

I think it would be normal practice for the spouse to get the insurance payout unless any specific instructions were given to the insurers.

I'm in Scotland op and recently went through this. Insurance payout was split 50/50 between myself and late dh son

Also, this does not form part of the estate. Neither does death in service payment

It depends on whether the policy was held in trust. If so it falls out with the estate and the trustees decide who to pay it to. It sounds like that is the case here but you need to understand the basis upon which the policy was held to answer the question.

There were no special considerations around the policy, just a normal insurance policy, so it looks like he can keep it.

If it was a policy just on the life of the deceased, not in trust, not assigned to a bank or building society as part of a loan or whatever then it does form part of the estate and should have been paid to the executor.

If it was a policy proposed by the husband on the life of the wife (in the pru he may have been named as the “assured” with her as the “life assured”) or a policy where they were jointly assured then it doesn’t form part of the estate and goes directly to him.

When I worked for the pru in death claims a number of years ago they had a risk based approach where they would have paid out depending on the value of the policy without insisting on the will. This may well have changed in the interim.

If the policy was single life with no one else named on it as proposer, trustee, assignee or joint life assured and you have proof that the husband was not the executor of a valid will then you can raise it as a complaint and they could pursue it as a fraudulent claim.

@LaMontser The policy was a simple life policy, not in trust and with no named beneficiary. The husband was not named, but was a dependent of the deceased. The two adult children were not dependent on the deceased. These facts were given to the insurer. The husband was not the executor. The executors were the adult children and they have employed a probate solicitor. The probate solicitor contacted them. They wrote to the husband and presumably the probate solicitor acting for the executors.

Prudential had all the facts. So if it was not legal to pay the husband direct, surely they would have known this?

Husbands solicitor I believe did say, the money falls outside the estate, but I'm not 100% sure I heard her say it, just think she did.

Either way there is an agreement proposed to split 3 ways, and they have been informed of this.

Hi. That’s really odd. The only way it can fall outside of the estate is if someone else was named on it. As I said though when I worked there, there was a financial threshold where we would waive documents like wills if the value was relatively small - knowing the risk to the business if it was paid incorrectly. We only dealt with executors - not beneficiaries.

i hope it gets sorted.

I would assume that the husband was the named beneficiary.
You have to specify one when you take out the policy. It’s why it’s important to keep the nominations up to date.
The trustees usually prioritise the nomination over the will.

OP says there was no named beneficiary. If the policy was not written in trust and a beneficiary was named, the money must be paid to them regardless of anything in the will.

If a policy is written in trust, you are given the opportunity to state who you want to benefit when you take out the policy, but you do not have to name anyone. Even if you do name someone, the trustees are entitled to ignore your nomination and give the money to someone else. They will normally follow the nomination, but if, for example, a married man has asked for all the money to go to his girlfriend and none to his wife, the trustees may well ignore his wishes and give the money to his wife.

Sorry I was confusing a life insurance policy with death in service benefit.
Yes a life insurance policy usually forms part of the estate (unless it is written in trust with named beneficiaries).
Did the company require the Grant of Probate or just pay it out? Did the husband deal with the administration of the policy and put his bank account as the nominated account to receive the proceeds?

He was told there was no one named, and therefore the trustees would decide. Seen the documents and there is no one named.

Im pretty sure it wasn't in trust, just taken out as a normal policy and no one was named. Unless a trust is something g automatic when the policy is set up as it's run by trustees. @Candleabra

It’s not automatic.
Most people set up the life insurance in trust as way of minimising inheritance tax - if it is set up in trust to pay out to a named beneficiary or beneficiaries it’s outside the estate (for IHT purposes).

When my husband died the insurance companies asked to see the will. One waited until probate was granted, and one paid straight away. I don’t remember there being any problems.

The above post is somewhat confused.

A life insurance policy written in trust is always outside the estate regardless of whether there are any named beneficiaries. Depending on the type of trust, there may not be any named beneficiaries as such. If there are no named beneficiaries, the deceased may have made an expression of wish, saying who the money should go to. In that situation, the trustees will normally pay the money in accordance with the deceased's wishes, but they are not legally bound to do so.

If the policy is not set up in trust and there are named beneficiaries, it is still outside the estate as it goes straight to the beneficiaries. However, a life insurance policy to cover a mortgage, for example, will usually form part of the estate if it is not written in trust.

In short, it is complicated, so it is not surprising people are confused!

It must have been in trust if the “trustees” decide.

most life insurance is written in this way - on death it’s paid to whoever the trustees decide (in their discretion). It therefore passes outside the estate and goes to whoever the trustee decides (usually they will pay it to whoever the policyholder has nominated but they don’t have to).

Most insurance policies are in trust. The trust deed is one of the standard documents that is signed when it's set up - most people don't quite grasp that's what it is. The deed will set out a pool of potential beneficiaries (spouse, children, grandchildren etc). The settlor may or may not nominate named beneficiaries but this isn't always legally binding and the trustees can then exercise their discretion about who in the pool of beneficiaries should benefit.