How To Avoid Common Mistakes With Life Insurance Beneficiary Designations
Estate planning involves many different components, and choosing a life insurance beneficiary is one of them. When you take out a life insurance policy, you will name a beneficiary. The beneficiary will receive the proceeds from the policy after you pass away, and the policy is not subject to the probate process.
Designating a beneficiary on a life insurance policy seems fairly straightforward. Still, there are many common mistakes people make that can cause confusion and other issues. Below, our Daytona Beach estate planning lawyer explains how to avoid these.
Failing to Name a Beneficiary
Although it may seem obvious, people sometimes overlook naming a beneficiary on their life insurance policy. Sometimes, people also choose to make their estate the beneficiary of their policy. Both of these mistakes will require the policy to go through the probate process. There are many reasons to avoid probate when it comes to life insurance policies.
First, it will take longer for your beneficiaries to receive the proceeds of the life insurance policy. Additionally, it opens the proceeds up to claims from creditors you may have owed debt to when you passed away. This can entitle the creditor to a portion of the proceeds, meaning there will be less for your loved ones. Always ensure you designate a beneficiary on the policy itself and an alternate beneficiary in case the original designation passes away before you.
Not Updating Beneficiaries
It is critical that you update your entire estate plan from time to time, and this includes reviewing your life insurance beneficiaries and making changes as needed. Any time there is a birth, death, divorce, or marriage in your family, you should review the beneficiary designations on your life insurance policy. This can help you avoid problems in the future, such as the proceeds going to your former spouse if you divorced.
Choosing Minors as Beneficiaries
In Florida, minor children cannot receive any property valued over $15,000. Most life insurance policies exceed this amount. If you have designated a minor child as the beneficiary, they will have a fiduciary guardian appointed to them by the court. The guardian will manage the funds until your minor child turns 18 years of age. Guardians charge a fee, which can reduce the total proceeds available to your child. If your child has another parent who survived you, they can ask the court to appoint them as guardian but there is no guarantee that the court will select them.
Instead of naming your child as a life insurance beneficiary, you can name them as a beneficiary to a trust and place the policy into the trust. You will have greater control over the property, as you can outline when your child should receive the property. The trustee who manages the trust must also do so according to your instructions.
Our Estate Planning Lawyer in Daytona Beach Can Help You Avoid Mistakes
Life insurance policies are important components of estate plans but they only benefit your family if you do not make mistakes. At Bundza & Rodriguez, our Daytona Beach estate planning lawyer can execute your plan and ensure no mistakes are made so you and your family are protected. Call us now at 386-252-5170 or contact us online to schedule a consultation and to learn more about how we can help.
Source:
leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0700-0799/0736/0736.html
