A recent Insure.com post provides important information on the 10 mistakes you need to avoid when naming beneficiaries for a life insurance policy:
Leaving benefits to a minor. By law, insurance companies cannot pay benefits to minor children, so you need to create a trust to funnel these funds or else a court will appoint a guardian – a time-consuming and costly process that is totally avoidable.
Leaving benefits to special needs person. By leaving policy proceeds to a special needs person, you could be inadvertently making them ineligible for government benefits. Again, setting up a trust will help avoid this.
Forgetting community property state rules. California is a community property state, so if you want to leave your life insurance proceeds to someone other than your spouse, your spouse will have to sign a waiver.
Creating a tax trap. If one spouse owns a life insurance policy on the other spouse’s life and names a child as beneficiary, the payout could be counted as a gift, creating tax problems for the beneficiary.
Using your will to change your beneficiary. A life insurance policy is a contract, and thus trumps a will. If you want to change your beneficiary, you need to contact your insurer.
Not updating. Review your policy at least every three years to determine if you need to change beneficiaries because of a death, birth, divorce or remarriage.
Just naming one beneficiary. If you only name one beneficiary and that person dies before you do, the proceeds will go to your estate and will be subject to taxation. Always name a second and a final beneficiary.
The Flanigan Law Group provides Southern California residents with personal attention for estate planning, administration and litigation legal services. When disputes between families, arise, they are very successful in resolving legal estate issues quickly and efficiently while preserving financial and emotional resources. Contact the Flanigan Law Group at 949-450-0041.