Insurance Death Benefits

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What happens when you die? Do you go to heaven or hell? Do you see your whole life flash before your eyes? I don’t know about those things – maybe you need to do another web search. But I can tell you this: some of your property will become part of your deceased estate, and some other things that you may think of as being your property probably won’t.

Something that may not become part of your deceased estate is any life insurance death benefit payment that is triggered by your death. This also includes superannuation (retirement fund) death benefits, in Australia.

Why? Because you don’t own the property (the death benefit) while you are alive. It is different from your car or furniture, which you can leave to your family or friends. The money you pay to an insurer (or superannuation fund trustee) goes into a fund with other people’s money. What happens when a person dies is that this triggers the “crystallisation” of a benefit, which is drawn out of the fund, and is then paid to the person or persons who the member has nominated to be their beneficiary or beneficiaries.

If the member has nominated a spouse or other family member or friend(s), then the trustee pays the benefit to that person or those persons. If the member has nominated his or her own estate as the beneficiary, then the property is paid to the deceased member’s executor and becomes part of the deceased estate for the first time. Rather strangely, the law allows your estate to accumulate property after you die. There are consequently a lot of rich dead people in this world who are getting even more rich as a result of having died. (That might count as a spooky piece of paranormal information.)

What’s the punchline to this story? It’s this: you have to be very careful, when you are deciding who gets what after you die, i.e. when you prepare your Will, to understand whether your life insurance (and superannuation) death benefits will bypass your  estate or not, and who will be receiving those benefits. Some people insert adjustment clauses in their Wills saying that if a beneficiary named in the Will receives a death benefit separately, then their gift under the Will will be adjusted (reduced) accordingly, out of fairness to the other beneficiaries.

If you live in Western Australia and would like to discuss making a Will, please contact us on (08) 6460-5460.

[The author of this post, James Irving, is a Perth business lawyer with Irving Law who assists clients with basic Wills and testamentary trust Wills. Photo credit: Brasao Estado do Rio Apolice by www.brasilcult.pro.br – a public domain image published by Wikimedia Commons.]

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