Life Insurance Without Named Beneficiary Not Protected From Creditors
People should be able to protect from their creditors their life insurance policies and death benefits payable to their heirs. Sometimes people make simple mistakes which expose large amounts of life insurance money.
Florida law protects cash value of life insurance you own on your own life. Upon your death the life insurance proceeds payable to your named beneficiary is also exempt from your creditor. The same death benefits may be exposed to your beneficiary’s creditors, but the proceeds are not exposed to your own creditors.
One of my clients had a $1 million life insurance policy without a named beneficiary. He had named his former spouse as the beneficiary, but they got divorced and the client had not substituted a new life insurance beneficiary. If this person were to die his life insurance would be payable to his probate estate. Probate assets are not exempt from creditors. In effect, unless this client names a beneficiary, or alternatively, transfers his policy to a life insurance trust, he may be paying life insurance premiums for the benefit of his creditors.
In Illinois it is also highly recommended that you name an individual, person, dependant, and not a trust, as the beneficiary as a consequence of the Dowling case (DOWLING v. CHICAGO OPTIONS ASSOCIATES, INC., 365 Ill. App.3d 341 (2006))which held that the cash value in a policy is NOT protected from creditors where the life insurance policy names a trust as the beneficiary. The statute(735 ILCS 5/12-1001(f))is clear, the court said, that a trust is not a qualified beneficiary for purposes of protection from creditors under the statute. Dowling at 351,352.
I am confused. First, you say "without a named beneficiary", but then you say "He had named his former spouse as the beneficiary but they got divorced and the client had not substituted a new life insurance beneficiary."
Is the former spouse not still the named beneficiary?
Thanks,
Joe
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