As you are considering how your assets will move to the next generation, your life insurance policy might represent a significant portion of these assets. Say that you have a policy that will pay out $1 million upon your passing. It is crucial to decide who should receive this payout, along with all of your other financial or tangible assets.
One important detail to consider is the beneficiary designation on the life insurance policy itself. If this is in conflict with your estate plan, the designation often takes precedence.
How could this cause problems?
For example, say that you purchased your life insurance policy 30 years ago and you had just one child. You named that child as the beneficiary, so they should receive the money.
But after purchasing the policy, you had another child. In your estate plan, you have written that both siblings should split up the money. When you pass away, the life insurance company is not going to look at your estate plan, but will simply pay your firstborn child, who is the named beneficiary. So this could mean the assets are not distributed in accordance with your wishes.
There are certainly ways to address this, and it may be as simple as updating the beneficiary designation. But you could also take other steps, such as naming a trust to be the beneficiary. The life insurance policy then pays out to fund the trust, and the rules that you set for the trust distribute the assets to any beneficiaries you choose to name. You also select a trustee who is in charge of ensuring that these instructions are followed.
Planning in advance
Transferring large assets like this can certainly be complex. This is why it is so important to plan in advance and to understand all of your legal options.