How to Choose a Life Insurance Beneficiary
Life insurance policies typically require a beneficiary for the proceeds payable upon death. This is one of the things that is predetermined by the policy holder. You must be certain that you are making the best choice. A beneficiary can be one, two, or more people, or even a trust you have setup with proceeds administered by the trustee, a charity, or your estate. When you designate beneficiaries, you have the final say over who receives your death benefit. If a beneficiary is not selected, your state’s laws will determine who receives it.
What appears to be a simple issue is astonishingly more complex than the average individual would suppose. The choice of beneficiary can influence yourwhole estate, incur tax inferences, and affect the amount of proceeds awarded to the beneficiary/beneficiaries. Selecting the most obvious person(s), like a spouse or children, may not always be the best choice. For example, if you choose your spouse the proceeds may be subject to their creditors. If they remarry, their new spouse could withhold proceeds from your children. If you leave proceeds to your children, there may be a possibility that they are not mature enough to handle the funds. As a result, there are ways to guarantee your universal life insurance serves the function for which you have intended. Likewise, there are pitfalls to avoid as well.
Life Insurance Beneficiaries
Naming a Person(s)
Tread carefully before naming someone as your beneficiary. Bear in mind the proposed use of the money when doing this. If you select more than one person, it is better to use percentages and not dollar amounts to distribute the proceeds, in addition to being specific. Furthermore, it would be wise to assess your beneficiary choice(s) from time to time, particularly following important life transformations like births, deaths, marriages, and divorces.
Choosing Your Estate
Overall, choosing your estate as beneficiary is risky. Taking this route will permit the proceeds to become a component of your probate estate, which will increase estate taxes owed and reduce the benefit amount. Furthermore, monies will be unavailable until the will has gone through probate, which makes proceeds vulnerable to any likely probate disputes such as debts, legal queries, delays, and taxes.
Naming a Trust
Life insurance policies have different kinds of trusts. The main types are revocable, irrevocable, and testamentary trusts.
-Testamentary trusts are created via a will and are enforced after the death of the grantor. It is normally used to administer funds to be paid to minor children for education and support, but can be utilized to manage assets for adults, or a person that is disabled. Testamentary trusts are free of upfront or ongoing costs to set up and to uphold the trust.
-A revocable trust is arranged so that you can monitor the settlement of your assets both while you are alive and after you are deceased. Life insurance proceeds evade probate. Dissimilar to an “irrevocable trust,” a revocable trust can be concluded or changed at any time by the grantor, with the proceeds subject to becoming a part of the insured’s estate. Consequently, most life insurance trusts are irrevocable. Once they are established, you cannot change the terms of the trust, the beneficiary of the trust, or borrow against the policy.
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