Life insurance is an important part of estate planning. It is critical that the beneficiary designation of a life insurance policy be properly named to ensure the proceeds of the policy are distributed according to your wishes when you pass. Unfortunately, there are 5 common mistakes when it comes to naming beneficiaries of insurance policies.
1. Failing to update beneficiary when life changes: If there has been a birth, marriage, death or divorce, the beneficiary designation must be reviewed. A rule of thumb is to review life insurance policies every 2 to 3 years.
2. Not naming a contingent beneficiary: If the policy holder outlives the named primary beneficiary, then the policy proceeds will be subject to probate when the policy holder passes away. The probate process is an expensive and lengthy court proceeding that can be avoided if a contingent beneficiary is named.
3.Minor beneficiary named: A beneficiary under the age of eighteen will not be able to receive the policy proceeds outright. Rather, a court proceeding called a conservatorship will be necessary to appoint an adult to be in charge of the policy proceeds for the minor beneficiary. The conservator appointed may not be the person you would have wanted to be in control of the proceeds; the conservatorship can delay the access to the policy proceeds; and the process is costly.
4. Naming a special needs beneficiary: A special needs beneficiary named as a beneficiary on a life insurance policy may cause the beneficiary to lose his/her government benefits. Creating a properly drafted Revocable Living Trust can protect the life insurance proceeds for the special needs beneficiary without losing their much-needed benefits. The key here is the Trust must have special provisions to ensure protection for the special needs beneficiary.
5. Assuming a Trust controls the insurance policy beneficiary designation: The life insurance policy beneficiary designation controls who receives the proceeds. In order for the trust terms to control who receives the life insurance policy proceeds, the trust must be named as the beneficiary of the life insurance policy.
Life insurance policy beneficiary designations should be reviewed every 2-3 years to ensure your intended wishes are carried out. Failure to review and update life insurance policy designations can cause your policy to be distributed to the wrong person! You have worked hard for your estate – it’s time to make sure your estate plan is up to date.
For more information or to schedule a free consultation, contact our office today at 888.222.1328.
What the Attorneys of Morris Hall Can Do For You:
The attorneys at Morris Hall have 100’s of years of combined experience ensuring that families’ assets are protected from probate, unnecessary taxes, creditors, ex-spouses and Medicaid spend-down. The attorneys also help those in Arizona and New Mexico to apply for and receive Medicaid assistance and Veterans Benefits. Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Cave Creek, Tucson, Prescott, Flagstaff and Arrowhead. Our New Mexico offices are located in Albuquerque, Las Cruces and Santa Fe. Contact us today at 888.222.1328 to schedule an appointment!
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.