One of the most import estate planning decisions that one makes is choosing a beneficiary for their Life Insurance. Naming who should get money after you die sounds like a simple and easy task; however, Life Insurance mistakes are common and can have devastating results.
Let’s examine several common mistakes made in regard to Life Insurance:
Naming a minor child
Life Insurance companies will not make direct payment of Life Insurance to minors until age 18.
Failing to plan in advance could be costly and time consuming once the courts get involved.
Beneficiary Designation Trumps a Will
It’s important, however, to know that regardless of what your will says, the life insurance money will be paid to the beneficiary listed on the life insurance policy. That’s why it’s important to contact your insurer to change your beneficiary, if needed.
Always Name Contingent Beneficiaries
Beneficiaries often predecease the insured. Failing to name a contingent beneficiary could lead to complications.
- Heirs could face delays is getting the money.
- The life insurance proceeds, which normally would be protected from creditors, can now be open to creditors’ claims.
Making a Dependent Ineligible for Government Benefits
Federal law sets guidelines limiting the amount of gifts and inheritance that a recipient may receive. Naming a lifelong dependent, such as a child with special needs, as beneficiary puts the loved one at risk for losing eligibility for government assistance.
Establishing a special needs trust and naming the trust as beneficiary could be the answer. Contact our office to see if a special needs trust is an appropriate solution for your situation.
Update, Update, and Update
You should review your policy every year and after major life events, such as marriage, having children or divorce. Change the beneficiaries when circumstances change.
Unfortunately, many people forget to do so. These are only a few of the common mistakes that clients make in regard to Life Insurance. Don’t wait until it’s too late. Estate Planning is not for you, it’s for the ones you leave behind. Help protect the ones you love the most.