Common Mistakes To Avoid When Designating Life Insurance Beneficiaries
There are many important aspects of estate planning. Many people often first think of wills and trusts and while these can provide a foundation for your plan, there are other elements to consider, as well. Life insurance policies, and the beneficiaries you name, also play an important part. When designating beneficiaries in your life insurance policy, it is important to avoid common mistakes that could have serious consequences for the loved ones you are trying to protect.
Failing to Designate a Beneficiary
While designating a beneficiary in your life insurance policy may seem obvious, to others it is not. Whether this is intentional or not, too many people fail to designate a beneficiary. In other cases, people name their estate as the beneficiary. In both of these instances, the insurance proceeds would have to go through the probate process. A probate judge will then decide how to distribute the proceeds from the policy.
Not only is the probate process long, delaying your loved ones’ inheritance, but it can also be costly. Once the funds go through probate, they are open to creditor claims, meaning your loved ones may not receive the full inheritance you intended to leave them.
Not Updating Beneficiaries
Not designating a beneficiary is a costly mistake, and so is failing to update your beneficiaries regularly. For example, if you divorced and remarried, your former spouse may still be designated as a beneficiary on your life insurance policy. If not updated and changed, your former spouse would receive the proceedings and your current spouse will not receive anything. Always review your beneficiary designations every year, along with other elements of your estate plan. Any time there is a major life change, such as a divorce, marriage, death, or birth, you should also review your entire plan to ensure it is up to date.
Designating a Minor as a Beneficiary
Your natural instinct may be to leave everything to your children. However, you should not name them as a beneficiary, particularly in your life insurance policy. Minor children in Florida cannot receive assets if the total amount is more than $15,000. If your life insurance proceeds are greater than this, a court-appointed guardian will manage the proceeds, usually at a cost. They will also provide a yearly accounting to the court. Once the child turns 18 years old, they will then receive the funds in a lump sum, which you may not have intended.
Also do not name your child’s guardian, as they will receive all of the proceeds to do with as they wish. Instead, create a trust and place the life insurance policy in it. You can then name a trustee who will distribute the proceeds to the child in the manner you wish.
Our Estate Planning Lawyer in Daytona Beach Can Help You Avoid Mistakes
Making a mistake when estate planning can be just as consequential as not creating a plan at all. At Bundza & Rodriguez, our Daytona Beach estate planning lawyer can ensure that your plan contains everything you and your family need, and that no mistakes are made so your wishes are respected. Call us now at 386-252-5170 or contact us online to schedule a consultation and to get sound legal advice.
Source:
myfloridacfo.com/division/consumers/understanding-insurance/lifeinsuranceoverview
