Sec. 16. (A) The terms “proceeds” and “proceeds of life insurance” and similar phrases used in this section mean and include any and all benefits payable by the insurer by reason of the death of the insured under any “life insurance,” “policy of life insurance,” “insurance policy,” “policy,” or “annuity contract” providing for benefits on the death of the insured, including individual ordinary life policies, certificates issued under a group policy, annuity contracts, and accident or health policies.

     (B) Proceeds of life insurance policies heretofore made payable to a trustee or trustees named as beneficiary or hereafter to be named beneficiary under an inter vivos trust shall be paid directly to the trustee or trustees and held and disposed of by the trustee or trustees as provided in the trust agreement or declaration of trust in writing made and in existence on the date of death of the insured, whether or not such trust or declaration of trust is amendable or revocable or both, or whether it may have been amended, and notwithstanding the reservation of any or all rights of ownership under the insurance policy or annuity contract; subject, however, to a valid assignment of any part of the proceeds. It is not necessary to the validity of such trust agreement or declaration of trust that it be funded or have a corpus other than the right, which need not be irrevocable, of the trustee or trustees named therein to receive such proceeds as beneficiary.

     (C) A policy of life insurance or annuity contract may designate as beneficiary a trustee or trustees named or to be named by will if the designation is made in accordance with the provisions of the policy or contract whether or not the will is in existence at the time of the designation. The company shall, within sixty days after receipt at its home office of proof of probate of the will, pay the proceeds of such insurance or contract to the trustee or trustees designated in the insurance policy or annuity contract, subject to a valid assignment of any part thereof and any other provisions of the policy or contract, unless prior to the actual payment by the company it shall have received at its home office written notice of the filing or pendency of (1) objection to the probate of said will, or (2) a suit to contest the validity of said will or of the testamentary trust or trusts created therein to which such proceeds are payable, or (3) petition for the construction of that part of the testamentary trust designating the trustee or trustees: Provided, however, That if the company makes any payment or payments of proceeds to such trustee or trustees in accordance with the terms of the policy or contract before receipt at the home office of such written notice, said trustee or trustees shall give full acquittance therefor to the company and such payment shall fully discharge the company from all claims and liability to the extent thereof. Provided, further, That if such written notice is received by the company, payment by it of any unpaid proceeds may be delayed during the pendency of said objections, suit, or petition for construction for not to exceed one (1) year from the date of death of insured, and thereafter the company may pay any and all unpaid proceeds due by reason of the death of the insured to the clerk of the court wherein the probate proceeding is pending by depositing them with such clerk who, as such clerk, shall give full acquittance to the company for all proceeds so paid and the company shall be fully discharged from any and all liability and claims by or on behalf of any other person or persons whomsoever to the extent of the amount so paid and deposited. The clerk shall thereafter hold and disburse said proceeds in accordance with the order of said court to the party or parties and in the amount or amounts provided in said order upon receiving proper receipts therefor; all Provided, however, That the procedure provided for herein shall not preclude the company from interpleading or being interpleaded in any appropriate proceeding or filing a bill of interpleader in any court of competent jurisdiction.

     (d) If no claim to proceeds is made by any trustee designated as the beneficiary in any policy of insurance or annuity contract within one year after the death of the insured or if satisfactory evidence is furnished the insurance company within the one-year period showing that there is or will be no trustee qualified to receive the proceeds, payment may be made by the insurance company to those thereafter entitled.

     (e) The proceeds of insurance collected by the trustee or trustees are not part of the testator‘s estate and are not subject to the debts of the insured or to transfer, inheritance, or estate taxes to any greater extent than if the proceeds were payable to some named beneficiary or beneficiaries other than to the estate of the insured or executor or administrator thereof.

     (f) This section applies to all trustee designations of a beneficiary or beneficiaries by an insured dying after June 15, 1967, regardless of when made, naming a trustee or trustees of a trust or trusts established by will.

     If any provision of this section or the application thereof to any person or circumstance is held invalid, the invalidity shall not affect other provisions or applications of this section which can be given effect without the invalid provision or application.

Formerly: Acts 1935, c.162, s.155b; Acts 1967, c.127, s.4.