Texas residents may want to keep in mind some basic rules about the retirement accounts, annuities or life insurance policies of deceased loved ones or friends. If the policy or applicable papers contain a specific beneficiary designation, that asset will in most cases be paid directly to the listed beneficiary. The asset does not go through the decedent’s estate and is not subject to estate administration. Thus, the asset is exempted from payment of estate liabilities, including from having to pay any state or death taxes owed by the estate.
There is one notable exception to that rule: when the beneficiary designation has been left blank or the beneficiary has predeceased the owner, the asset will be paid over to the estate and will be treated as an estate asset. Even where the funds are outside of the estate, however, the executor or other personal representative may often be called upon to assist the beneficiary in surrendering the policy and collecting the funds. The insurance policy or accompanying papers will often contain a phone number to call or the address to contact when cashing in a policy or account.
The company usually responds by sending a statement of instructions identifying what must be sent back to get the funds and close the matter out. This usually includes surrender of the policy itself, other documents indicating account ownership and beneficiary designations, certified death certificate and possibly other identifying documents. When receiving such funds, the beneficiary may incur tax obligations.
A tax adviser or accountant should be consulted with respect to the receipt of beneficiary payments. For sizable distributions in Texas and elsewhere, it is recommended to have the consultation prior to obtaining the funds. There may be tax consequences that will make it preferable to receiving the distribution in installments or to otherwise regulate the timing of the distribution. Where the funds are being treated as estate assets and are subject to estate administration, the attorney for the estate will work closely with the executor or personal representative to receive and distribute the funds.
Source: jewishlinknj.com, “Basics for Beneficiaries“, Elozor Preil One, Jan. 8, 2015