23 August 2012 0 Comments

The Beneficiary: Getting Money To The Right People

I started the topic of Estate Planning with a very broad definition of that process.  If you own life insurance it is possible that the largest single asset to be distributed at your death will be those proceeds.  So, proper beneficiary designations become a very important part of your estate plan.

A Primary Beneficiary is the person (or entity) that will receive the policy proceeds when the insured dies.  A Contingent Beneficiary receives the proceeds if the Primary Beneficiary dies before the insured dies.  Proceeds…

paid to a beneficiary, other than the Estate of the deceased, are not subject to the probate process or fees.  The policy owner names the beneficiaries.  A Will or Living Trust distribution designation is superseded by the beneficiary named in the policy.

So, who should be named as beneficiary of your policy?  Let’s start with the simplest scenario:  a married couple whose life insurance is to provide for family needs—as opposed to estate tax liquidity.  It is likely that the Primary Beneficiary will be the spouse, though a Living Trust is also a possibility if the intent is to spread some of the proceeds to other family members, or the spouse’s capacity to administer funds is at question.  If there are minor children I strongly urge that a Living Trust be established and named as the Contingent Beneficiary.  If there is no trust, then the Contingent Beneficiary could be: “John Child, Mary Child and any future children of the union between Father Parent and Mother Parent, equally, survivors or survivor.”  Without a trust, proceeds could get hung up as the courts decide who should act as trustee for minor children.  So, even if there is no trust in place, you could precede this designation with the name of the person who you want to be trustee with the following language: “Susie Sister, trustee for the benefit of….”  At least in this manner you have indicated who you want to act as trustee for the benefit of your children.  It’s best that an attorney draft a trust to be sure your wishes are carried out.

Keep in mind that if children are named as opposed to a trust, the designation should be reviewed as minor children reach adulthood, get married and perhaps produce grandkids.  If the grandkids, rather than the other children of the insured , are to get their parents portion if that parent dies prior to the insured, then the term “survivors or survivor” would be replaced with “per stirpes.”

As we move on I’ll be covering beneficiary designations that go beyond the “Leave it to Beaver” family situation.

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