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Your estate plan doesn’t control your life insurance proceeds

On Behalf of | Jan 27, 2023 | Estate Planning

People often worry about addressing their most valuable resources in their estate plans. Including your home, your investment accounts and your small business in your will or other estate planning documents will typically be a smart decision.

For many people worried about how their unexpected death might affect their families, life insurance may be among their most valuable resources. Your policy could pay out hundreds of thousands of dollars if you die in the next few decades.

While some people want to include their life insurance proceeds in their estate plans, they may make a mistake that affects how much control they actually have over their legacy.

Wills don’t determine what happens with life insurance

Your will provides thorough instructions about what should happen with your assets after your death. You can also talk about the care of your underage children and other crucial matters in your will. While the proceeds from your life insurance policy may do you want to keep protections you have secured for your loved ones, the policy documents are what determine your beneficiaries.

Even if you intend to use the life insurance funds to create a trust, your estate planning documents will only affirm those choices. They won’t control the distribution of your life insurance proceeds. The insurance company has specific paperwork that you must submit outlining who you want to receive the proceeds from the policy.

Although you can discuss those funds in your will or entrust documents, you typically need to update the paperwork with the insurance company to change the beneficiary who will receive those life insurance benefits. If your will provides conflicting instructions when compared with the beneficiary designations filed with the insurance company, the insurance records will determine who receives the funds.

Changing needs necessitate estate plan updates

Keeping a holistic view of your estate plan is crucial if you want to successfully achieve certain goals. You need to consider how to address specific assets and when you need to make changes to your existing documents.

Knowing what property to address in your will and what to handle elsewhere can be as important as setting specific goals during the estate planning process.