DO’s AND DONT’s WHEN NAMING A LIFE INSURANCE BENEFICIARY
Here are some things you should do and things you should not do when naming a beneficiary on a life insurance policy:
WHAT YOU SHOULD DO
- DO designate percentages rather than specific dollar amounts.
- DO identify the primary beneficiary including their full name(s), date of birth, and/or social security number(s).
- DO include a second or contingent beneficiary. There’s no extra cost for having a backup beneficiary for your life insurance policy.
- DO amend your life insurance policy of your circumstances change, for example the death of a beneficiary or a new addition to your family.
- DO revisit your policies every couple of years to keep your beneficiary information current on all life insurance policies.
- DO consult with your trust attorney if you have a trust and are trying to decide if the beneficiary of your life insurance should be your spouse or your living trust.
- DO remember to change your life insurance beneficiary if you are filing for divorce or have finalized your divorce. Leaving your ex-spouse as the primary beneficiary of your life insurance means they will receive the proceeds of the policy if you pass away, regardless of the divorce.
WHAT YOU SHOULD NOT DO
- DO NOT forget to include anyone such as adopted children or grandchildren if you have named heirs as primary or contingent beneficiaries.
- DO NOT name minors unless you have designated a guardian for the children.
- DO NOT name a creditor as your beneficiary.
- DO NOT use “estate” as beneficiary if you have specific family members that you would like to receive the proceeds. Naming your estate as beneficiary can cause potential tax issues and the proceeds will become entangled in the estate probate. Only in rare circumstances, after speaking with a life insurance attorney O’Fallon, Missouri, should you consider naming your estate the beneficiary of your life insurance.
- DO NOT have a separate owner, beneficiary, and named insured on a life insurance policy. This could result in tax problems.
- DO NOT name generic beneficiaries such as “wife”, “spouse”, or “children.” In the event you get divorced or become estranged from a family member, you want to ensure that your beneficiaries are specifically named.
- DO NOT leave one person as the life insurance beneficiary with the idea that they will hold the money for another person after you pass away. An example would be leaving all of your life insurance to one son, with the promise from him that he will “hold” the money for another son who has special needs. There are much cleaner and effective ways to provide for a special needs child (or a spendthrift child) with a special needs trust or a Missouri spendthrift trust.
It is important to think through your beneficiary designations, or your estate and family could be facing legal or tax complications. Make sure to occasionally review your beneficiaries on all life insurance policies to make sure all information is current.
Legacy Law Center is an Estate Planning and Probate Firm that can assist you with these matters. Please call us at 636-486-2669 to set up a free consultation.