Who Gets the Money if a Beneficiary Is Incarcerated?

If you needed another reason to stay out of jail, here it is: If you happen to be the beneficiary of a will, trust or life insurance policy, you probably won't get the money if you're locked up. Just who does get it may depend on the reason you're behind bars. In some cases, the funds might go to your victim or victim's family, or even to the prison system to offset the cost of your incarceration. In other states, the money will go to your next of kin.

Under some circumstances, your money may go into a trust for holding until your release. This scenario is rare, however, and you're far more likely to forgo your money than get it. In many places, incarceration at the state or federal level results in an automatic forfeiture of your right to receive income. This right is typically not reinstated upon your release, so income received during your incarceration is simply lost to you.

If an inmate is the beneficiary of a trust, the trustee must check with the state victim compensation board and government claims office regarding any funds or property interest the inmate is due. Those agencies deal with restitution. If the jailed individual is a beneficiary in an irrevocable trust, you must give his information to the appropriate government offices as soon as possible after the trust creator dies.

For example, under California law, the state must get this information within three months of the death date. The amount of money the government agency takes depends on state law, why the person is in jail, and for how long.

Sometimes, the person in jail appears in a will going through probate. The estate executor will need to inform the same state agencies as a trust beneficiary. Those offices will need a copy of the deceased's death certificate, as well as the name, birth date and place of incarceration of the heir. The executor also needs to give the agencies the contact information for the probate court, along with the case number of the probate file.

As a general rule, if you are the beneficiary of a life insurance policy, it's a bad idea to kill the policy owner. While this scheme is a movie plot staple, crime doesn't pay in reality. Virtually every state and country has laws prohibiting anyone convicted of homicide from receiving the proceeds of a life insurance policy on the victim, and that includes the killer's heirs. Perpetrators of this type of crime rarely get away with it in the movies and are even less likely to do so in the real world.

Law enforcement always looks to see who benefits from a victim's death, and a big life insurance policy that benefits you will point straight to you. Of course, incarcerated persons may forgo the right to receive life insurance proceeds even if the policy holder dies of natural causes. Like trust money, life insurance payouts might become the property of the state or the state's victim compensation office.

What happens to the inherited assets a jailed individual would have received in a will depends on the laws of the state. In some cases, the jailed person's claim becomes legally void and any other beneficiaries will split his share. In other cases, the assets could go to the criminal's next of kin or get held in a trust until the inmate's release.

If the deceased did not leave a will, some state laws prevent the incarcerated person from inheriting anything at all. In other states, a prisoner's ability to receive an inheritance depends on whether or not the crime was a felony.