If you have life insurance that you want to pass on to your family, it’s important that you understand exactly how to do so. This process can be easy, but even the smallest mistake can make things become very complicated. That is something you absolutely want to avoid, as your goal should be to prevent estate disputes and help things go smoothly for your heirs.
Fortunately, you do have options to accomplish this goal. Below are not all of the ways that you can approach this, but these are three of the most common tactics that people use. They provide you with a good place to begin.
Most common of all is simply naming beneficiaries on the life insurance forms. You can name one beneficiary if you would like, or you can choose multiple people who need to divide the money. You can make this designation when you first buy the policy, but you can always update it or change it in the future.
Putting it in the trust
Another option is to allow the life insurance policy to pay out into a trust as the beneficiary. The trust can then contain instructions for how the money should be divided up or used. Trusts can be created to reduce assets for those with special needs, to pay for college tuition, to protect heirs from wasting the money or for many other reasons. Using a trust is great for those who want to have more control over what happens to their assets.
Allowing it to enter your estate
If you do not pick a beneficiary or use a trust, you can sometimes allow the life insurance policy to simply enter your estate. It will then be divided up in accordance with your will. But this is uncommon and it’s important to note that the life insurance beneficiary trumps any instructions in the will. This usually just happens if the beneficiaries who were named have also passed away.
If you’re considering your estate planning, be sure you think about all of your options to make the right plan for your family.