4.5.2 Estates
If a policyowner fails to designate a beneficiary, or if the named beneficiary predeceases the insured, the proceeds of the policy will go to the insured's estate. Typically, beneficiaries are not responsible for the insured's debts, provided the beneficiary is not a cosigner on any of those accounts.
However if the funds go to the insured's estate, they are no longer protected from creditors; before the estate is settled, creditors are usually paid first. Then, of course, the IRS gets a piece of the funds through estate taxes.
Of course, the policyowner may designate whoever he/she wants to name as beneficiary as that is the policyowner's right. If the policyowner intentionally designates the estate as beneficiary, the proceeds can be used to meet federal estate taxes, debts and other administrative costs, leaving other assets intact to pass on to heirs. However, those funds will be included in the insured's gross estate for estate tax purposes. State death taxes must also be payable.
