Often times, our clients are not sure who should be listed as their life insurance beneficiary. While it may seem like an easy question, it often times requires some careful consideration.
Spouse. In some cases, your spouse is a great choice to be the beneficiary of your life insurance policy. Other times, it is not such a good idea. Concerns arise when your spouse is not the parent of all your children or if your spouse has financial management issues. If either of those apply, you may want to consider other options.
Children. Children under 18 years of age can not personally receive life insurance proceeds. Instead, the local probate court will have to appoint a conservator to accept the life insurance proceeds on their behalf. Thereafter, the conservator will hold the money for the benefit of your children and dispense it for their support in accordance with the court’s rules. Often times this creates unnecessary expense and burden which reduces the ultimate benefit to your children.
Estate. Many times new clients come to their first estate planning appointment and report that they have listed their estate as the beneficiary of their life insurance policy. Assuming they do not have a lot of debt and their estate plan is appropriate, that might be ok. However, most times clients do not realize that they are jeopardizing the ability of their spouse and/or children to get the entire life insurance proceeds since they listed their estate as the beneficiary. Listing your estate as the life insurance beneficiary can also delay your family members from having quick access to the life insurance proceeds at a time when it is usually needed most. Typically, we can suggest better options to protect what is the most valuable asset for many young families.
Trust for Children. In many of our estate plans where the clients have young children, we establish a testamentary trust which goes into effect after the death of the client, assuming the other spouse does not survive. That trust has detailed instructions concerning how the will beneficiaries, typically children, are to receive financial support from the estate proceeds. Often times, we recommend that clients list that testamentary trust as the beneficiary of their life insurance policies so that the money will go to the trust for the benefit of the children instead of being tied up in the probate process or being subject to creditor attack.
Charity or Nonprofit Organizations. You can name a favorite non-profit or charity organization as your beneficiary. You may do this to create certain tax or financial planning advantages, but this should always be discussed with your accountant or financial planner.
Things to Consider:
In determining who should be the beneficiary of your life insurance policy, you may want to consider the following:
- Will anyone be incurring expenses at your death for funeral, bills, etc.
- Who depends on you for financial support (spouse, adult children, minor children, etc.)? Can they manage the money themselves?
- Do you have personal or financial reasons for the proceeds to pass directly to the ultimate beneficiary or do you want them held in trust?
- Do any of your family members not get along or do you expect a will contest?
If you or a loved one needs to discuss life insurance beneficiaries and/or update your will and other estate planning documents, the Northern Georgia probate lawyers at Durden & Mills, PC can assist you. Call us at (706) 543-4708 for a free consultation.