What is more important, your Will or your Life Insurance Beneficiary Designation?


Most people are often unclear about this complicated, yet simple question. A Will is a legal document that sets forth your wishes regarding the distribution of your property and the care of your minor children.  Life insurance is a legal contract between you and the life insurance company who issued the policy.  The simple answer to this question is that your beneficiary designation on your life insurance policy is where the life insurance benefit proceeds will be distributed.  It doesn’t matter if you have made different arrangements in your will to split it differently, the will will not be followed for that.  Your life insurance contract is a stronger legal document and under normal circumstances supersedes your Will every time.

Even the beneficiary designation on your 401k, IRA, and annuity contracts you own are not subject to your WILL.  When you die, these policies are going to transfer to whomever you have listed as the legal beneficiary. 

When was the last time you updated your life insurance beneficiaries?  Are they all still alive?  Have you remarried and forgotten to change the beneficiary to your new spouse?  Did you have children from both marriages, if so how are you going to deal with that?  What about the grandchildren. 

By now you can see that it is vital to give adequate thought into who the primary, contingent and even tertiary beneficiaries should be.  By assigning the proper beneficiary designations you will spare your family many complications and frustrations at your death, and also save lots of time and potential taxes and administrative costs if probate is needed.

When deciding about life insurance beneficiaries, it is important to have contingent and tertiary beneficiaries in case your primary beneficiary predeceases you. If you want your life insurance benefits to go directly to children (especially children from a prior marriage) upon death, then you must name them as a primary beneficiary or a Trust for them. 

Speak with a qualified lawyer before naming minor children, without a Trust, as primary beneficiaries.  If not done correctly the court might assume guardianship causing undue costs until your children reach the age of majority in your state.  You may also be able to determine when the life insurance benefits are to be paid out.  They can be paid as one lump sum if you think your children are successfully able to emotionally handle the financial benefit.  Or you can have it spread out over several years on specific birthdays if you believe that will be more beneficial.

Finally, review your beneficiary designations at least annually to make sure your intent is still the same as it was when you created the designations.  Marriages, divorces, births, deaths, and financial situations of your beneficiaries may have changed your considerations.

So you see that selecting your primary, secondary and tertiary beneficiary is critical in the complex area of estate planning.  speaking with a Tax Free Retirement Specialist who can  help you update your beneficiary list and also coordinate the conversations with your tax advisor and estate lawyer is critical to a ensuring that your final expression of love is carried out the way you intended.  Click here to find Tax Free Retirement Specialist in your area.

There are some common ways you can designate all three beneficiaries depending on the specific situation you have.  There are also numerous other ways you can do your beneficiary designations.  You can move anyone from secondary to primary if so desired.  If you have no family you can even make the charity(s) your primary beneficiary.  We’ve included a Table with the specific language critical to beneficiary designation. Most of the secondary beneficiary designation examples on this table use specific secondary beneficiary language allowing the benefits of a predeceased child to be passed to their children so that the insured’s grandchildren are not disinherited.  If you don’t want the grandchildren to inherit your children’s share you would delete the phrase if living, otherwise, his lineal descendants per stirpes.”   This allows the deceased child’s share to be redistributed to the remaining living children.

Click here for the Beneficiary Table


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