Berman & Asbel, LLP

In estate planning, be sure life insurance benefits are counted

More and more people seem to get that it's important to have an estate plan. Regardless if you are a well-heeled Pennsylvania resident or one of somewhat lesser means, if you have assets you want distributed in a particular way in the event something happens to you, you need a will.

Among the elements deserving estate planning attention is how any benefits from a life insurance policy might be divided up. There are a lot of ways this can end up creating problems for those you care about. And that's another reason to include discussion about insurance payouts with an experienced attorney.

Here are a number of common mistakes offered by financial advisors:

  1. Naming a minor as beneficiary. If there is no trust established on behalf that person, the court is likely to see one gets set up. It can be costly and complicated.
  2. Attaching no strings. The age of adulthood may be 21. That doesn't mean a beneficiary thinks clearly. By attaching strings you can reinforce important values.
  3. Naming a disabled dependent directly. If you have a disabled child receiving Supplemental Security Income, naming that child directly could disqualify them from federal help. A special needs trust should be considered.
  4. Too many players involved. If you're not careful, tax shields that usually apply to life insurance benefits might not apply. For example, if a wife owns a policy on her husband and names their daughter as beneficiary upon death, the benefits might be taxable as a gift from mother to daughter.
  5. Assuming. We all know the line that goes with that word. In this case it means assuming your will's language supersedes what's in the insurance policy. Be sure the beneficiaries in both documents are synced up.
  6. Failing to update. Your computer will let you know if you have an update. Your will won't. With life changes happening faster than ever these days, you have to be ready to act yourself.
  7. Being vague. If you have three children and you want them all as beneficiaries, name them and provide their Social Security numbers. If another generation of children needs to be considered, ask your attorney about what needs to be done. If your spouse is the only beneficiary, what happens if he or she dies before you?

With forward thinking it's possible to avoid these errors.

Source: LifeHealthPro, "10 ways to screw up when picking life insurance beneficiaries," Barbara Marquand, Feb. 19, 2015

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