As you sit down to do your estate planning, it’s natural to think of your life insurance is one of your larger assets. For most people, this is second only to real estate that they own or perhaps a business that they run. It can even be larger than investment portfolios and things of this nature.
Regardless of the total of your life insurance policy, you want to make sure that it gets passed on to your heirs. So how is your estate going to handle it after you pass away?
It shouldn’t enter your estate at all
Ideally, your life insurance will never become part of your estate. This only happens if you have not named a beneficiary or if the beneficiary that you named has passed away and there’s no backup. In a situation like that, then the insurance payout just becomes part of your overall estate. You would need to put some sort of language in the will to denote which heirs were supposed to get what percentages of that payout.
But the way that life insurance typically works is just that you give the company a beneficiary designation at the beginning. Once you pass away, the money is paid directly to the beneficiary. It never counts as part of your estate and so you don’t have to plan for it. In fact, if you do plan for it and you write out instructions that are different than your beneficiary designation, they’re going to be disregarded.
What if you want to give it to multiple people?
You certainly can give your life insurance to multiple individuals, and there are a few ways to do it. For instance, you could set up a trust and then make the trust the beneficiary of the policy. The policy will then pay out into the trust, funding it, and the money can be transferred on to your heirs through that trust.
You can also simply add multiple beneficiary designations. You don’t have to pick one person, so you can specify that a percentage of the payment needs to go to different beneficiaries.
Complex financial issues
If you’re running into complicated financial issues while doing your estate planning, it’s very important to know what options you have. This is an area where you don’t want to make any mistakes and you need things to go smoothly for your family.