Among the expensive assets that you control, you have a life insurance policy. You’ve had it for decades, and you’ve always planned to leave it to your children. You only had one child when you took out the policy, so you named them as the beneficiary, but now you would like to set things up in your estate plan so that the money is split evenly between your three children.
What you’re hoping to do is simply to add a note to your will that says the life insurance is supposed to be divided. When you pass away and your children read the will, they will see what you desired, and they will split up the money appropriately. Is this a good plan for the distribution of that policy?
It could create problems with the beneficiary
This is actually a problematic way to address this because the beneficiary named in the life insurance policy is always going to be the one that takes precedence over anything else in your estate plan, at least in the eyes of the life insurance company that is paying out that policy. In other words, you’re welcome to say that all three children are supposed to split the money, but the life insurance company is going to make the entire payment to the beneficiary that you already named – your eldest child.
This doesn’t mean that your eldest child can’t split it with their siblings. They certainly can. But they’re not obligated to do it just because your will says that you want them to. A better way to address this would be to update your beneficiary designation or even to have the insurance policy pay out into a trust that can then split the money up.
You can see how complicated this can be and how a simple oversight can lead to serious issues, so make sure you know about all the steps you need to take.
