A robust estate plan provides for the well-being and financial security of your loved ones and helps you protect and control your legacy. Well-structured life insurance has helped many of our clients do just this. We work closely with life insurance professional Carmen Bississo of Cassaday & Company so that our clients get the best of the best.

Who should revisit their life insurance policy

Below are a few categories of people who tend to benefit most from thoughtfully chosen life insurance policies:

  • Business owners. If you own a business and want to leave it to some but not all of your children, a life insurance policy can provide cash to the children who are not receiving an interest in the business, equalizing the value of each child’s inheritance. A surviving business partner can also use life insurance proceeds to buy the deceased partner’s interest from their family. That way, the deceased partner’s loved ones receive the funds without the surviving partner having to spend money from the business or their own pocket, and the business can continue to operate uninterrupted.
  • Parents with young children. A life insurance policy can help pay for the expenses of raising children after their parents pass, reducing their guardian’s financial burden. Life insurance can also provide for a surviving parent if the deceased parent was the family’s primary source of income.
  • Caregivers for a disabled family member. A life insurance policy can provide funds for continuing care for family members with long-term disabling health conditions. This can be complicated, though, as if the family member is currently receiving or eligible for government assistance, you must exercise additional caution when providing them with funds from life insurance so the family member is not disqualified from receiving government benefits.
  • Those who want to leave part of their legacy to a charity or nonprofit. A life insurance policy is an effective way to fund your charitable endeavors without reducing other accounts or property that you may want to leave to your loved ones. Life insurance may allow you to leave a larger gift to the charity at your death than you would have if you had been making lifetime contributions.
  • People facing a large estate tax bill at death. If the value of all of your accounts and property is more than the lifetime exclusion amount at your death, estate tax may be due. Life insurance can provide your loved ones with cash to pay the tax. This money can be extremely helpful if your accounts or property would be difficult to cash in or sell to pay the tax.

When to revisit your choice of beneficiary

If you have a life insurance policy, it is crucial that you update the beneficiary designation so that it matches your goals. Below are a few examples of what happens to the funds based on your choice of beneficiary:

  • No beneficiary. If you do not fill out the beneficiary designation before you die, the death benefit will be distributed according to the policy agreement’s default rules, which may give the proceeds to your spouse or heirs, as defined by the plan agreement or applicable state law, or to your estate, which will require your loved ones to go through the costly, time-consuming, and public probate process.
  • A minor as beneficiary. Depending on your family situation, you may be inclined to leave the money from a life insurance policy to your minor child or grandchild. However, because a minor cannot legally own or control their money, a court would have to select someone to hold the money on the minor’s behalf until they reach the age of majority (eighteen or twenty-one, depending on your state). At that time, the money would be turned over in full to the beneficiary, who would be able to spend it however they choose with no protections.
  • An adult as beneficiary. While an adult can receive the money from the life insurance policy immediately, this solution may still not be ideal. After the beneficiary receives the money, they can spend it on whatever they choose; it could also be taken by a divorcing spouse or become subject to collection for an outstanding debt or judgment.
  • A trust as beneficiary. This option allows the money from the life insurance to be paid to the trustee of the trust along with instructions for how and for whom the trustee is to use the money. Additional provisions can be added to the trust to increase protections against creditors, divorcing spouses, and predators, and to ensure that the trust beneficiary benefits from the money.
  • A charity as beneficiary. For the philanthropically inclined, naming a charity as a beneficiary means that the death benefit will be immediately paid to the charity upon your death.

What to do now

If you already have life insurance, reach out to us so that we can review the beneficiary designation to make sure that it fits your estate plan and your goals. If you do not have life insurance or think you need more, ask us for a referral to our trusted life insurance strategist, Carmen Bississo of Cassaday & Company. We are always happy to meet with you and your advisors to ensure that your comprehensive financial and estate plans are working just as they should.

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Disclaimer: Materials prepared by JM LAW, PLLC are for general informational purposes only. Educational material does not create an attorney-client relationship and is not an offer to represent you. You should not act or refrain from acting based on information provided.

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