As you draft your estate plan, it may become clear to you that your life insurance policy is a substantial asset. Along with a family business or a family home, it’s probably one of your most valuable assets. As such, it’s important to you that it is passed down properly to the next generation.
What happens if there’s a conflict between that policy and your estate plan? For instance, say that you only named your oldest child as the beneficiary on your life insurance policy, because they were the only child who had been born when you bought that policy. But in your estate plan, you’ve designated that you want all three of your children to split the life insurance money equally. How is this going to be handled?
Your oldest child would get everything
A problem like this can be substantial because the life insurance company isn’t bound by the instructions in your estate plan. The only thing it looks at is the beneficiary designation. When you pass away, they pay that person.
In the example above, the entire balance would go to your oldest child as the only named beneficiary. Thus, the funds from that policy are not part of your estate. It no longer matters that your estate plan says your children are supposed to share the money. However, your oldest child isn’t legally obligated to do so. This can lead to disputes if the eldest does not want to share the policy with the younger siblings.
Appropriate estate planning can avoid some of these disputes. Be sure you know when and how to update your plan as your life and family change.
