When you first bought your life insurance policy, you just hoped that it would support your spouse and your new child if anything happened to you. It gave you a sense of security.
As time has gone by, you’ve had more children and even grandchildren. You still have that life insurance policy, but your new goal is to distribute it among your family members. How is this going to be done?
Life insurance has a beneficiary designation
When you buy a life insurance policy, the company is going to ask you to designate a beneficiary. You may have chosen your child or your spouse in the example above.
When you pass away, regardless of all else, the insurance company is going to look at this beneficiary designation and then follow it. That is their only job. They do not have to give it to anyone except the person – or the trust – that was named as the beneficiary.
What if your will says otherwise?
You can write your will to say anything that you’d like about your life insurance, but the company does not have to follow those instructions. For instance, you can instruct that it should be divided evenly between all of your heirs, but the insurance company is not going to do that. They’re still going to pay the beneficiary that you named originally.
This is actually why some people use a trust as the beneficiary. They get to have control over how the money is distributed and who gets it through the regulations put on the trust. The trust could split that money evenly, for instance, or pay out for specific reasons – education, medical costs, etc. But remember that that beneficiary is very important because the insurance company is not going to address any other aspects of your estate plan other than transferring the money.
Setting it up
If you have specific goals for your money and you want to use more complicated structures like trusts to distribute it, it’s very important for you to understand what tools you have at your disposal and how to use them properly. Take the proper legal steps to set up the right plan for your family.