When you are creating an estate plan, it is important to carefully consider how your life insurance policy is going to play a role. It can form a major percentage of the assets you are passing on to the next generation.
Remember, however, that it the beneficiary designation on the policy typically takes precedence over anything different that you might include in your estate plan. For example, say that you have four adult children. When you bought the policy, however, only your oldest child had been born. You named them as the beneficiary of your policy. When you wrote your estate plan years later, you noted that each of your children should get 25% of that life insurance payout.
When there is a conflict like this, the insurance company will typically just pay the beneficiary who has already been named on the documentation you submitted. In other words, the life insurance policy would take precedence over your will, so your firstborn would still get 100% of the payout.
Are there ways around this?
The easiest way to fix this type of issue is to update your beneficiary designation itself. You can name all four children to split the proceeds equally, and the appropriate distributions will be made.
Another option is to put your life insurance policy itself into a trust, like a revocable living trust. When you pass away, the trust receives the payout, and your chosen trustee will distribute the funds to your beneficiaries as you’ve designated in the trust document.
The important thing is to identify when there may be a conflict between different types of estate planning documentation and to take proactive steps to set everything up correctly. Be sure you know exactly what legal options you have. Having experienced estate planning guidance will help.