There’s no law that says you must name a beneficiary on your life insurance policy, but if you don’t, state law can get involved with what happens next. It’s also possible to name a beneficiary who isn't able to accept the benefits when the time comes. Ohio law determines at least one instance when this might occur automatically.
If the individual you designate predeceases you, this leaves your policy with no beneficiary. What happens in this case – or what happens if you don’t list a beneficiary at all – often depends on the insurer, not the law. Some insurance companies may pay the proceeds to your spouse or, if your spouse has predeceased you, to your children. Your parents or siblings might be next in line to receive the funds. Ultimately, if no qualified relatives can be located, the proceeds would go into your estate, and some policies will automatically send the money to your estate if you do not have a living beneficiary. Under Ohio law, if you named your spouse but then then divorced or legally separated and never changed the policy’s beneficiary designation, the money will automatically go to your estate. The state treats this situation as though she predeceased you unless you specifically state in your separation or divorce decree that you intend your ex to have the money.
An Estate as Beneficiary
Ohio law requires that if your policy doesn’t designate a living beneficiary and the death benefits revert to your estate, probate is required to transfer the funds if the proceeds are more than $35,000. This is the case even if you leave no other property that requires probate. If you don’t leave a will, your property will be disbursed according to Ohio’s laws for intestate succession. The money would go to your spouse if she survives you unless you have children from another relationship. In this case, she would share the money with them. If you leave no spouse but you have children, the money would go to your children, and if you have neither a spouse nor children, the proceeds would go to your parents. If one or both of your parents don’t outlive you, your siblings would share the estate, and if you have no siblings, the money goes to your grandparents. If they’re not living, it goes to their descendants, then to your stepchildren if you have any. If none of these people is living, the state of Ohio takes the money.
Whether the federal government will impose an estate tax on the money depends on who actually owns the policy, not where the funds go, with or without a beneficiary. The Internal Revenue Service has strict rules regarding this and insurance proceeds typically only escape taxation if someone else owns the policy on your life or if the money goes to your spouse. As of 2014, however, the overall value of your estate would have to exceed $5.34 million before the balance over this amount is taxed. Ohio has not had an estate tax since January 2013, and neither the IRS nor Ohio impose inheritance taxes payable by beneficiaries who receive the money.
It’s relatively easy to avoid the problem of your policy’s proceeds going to someone you don’t want to receive them. Most policies allow you to name contingent beneficiaries – others who will receive the money if your initial beneficiary is not able to receive it. You can also update your beneficiary designation at any time.