Naturally, while doing your estate planning, you’re probably going to focus on your most expensive assets. You may start the plan by determining how you want to divide up your savings, your investments, your marital home and other big ticket items. You can then work your way down to smaller items like family heirlooms or things that just have sentimental value.
If you have a life insurance policy, it could be worth a substantial amount of money. If it’s worth $1 million or more, it may be one of the most expensive assets you own. Does this mean you need to put it into your estate plan?
Did you already designate a beneficiary?
It is possible to put a life insurance policy into an estate plan, and it does have to happen in some cases. For example, maybe you never named a beneficiary, maybe the beneficiary passed away or perhaps you named a trust as the beneficiary so that the trust will be funded by the life insurance payout.
But in many cases, you actually do not have to divide your life insurance with your estate plan. Instead, you designate your beneficiaries when you purchase the plan. If you’ve only named one beneficiary, they get the bulk of the payment.
In fact, even if your estate plan said that the payment should be split between multiple beneficiaries, the life insurance company would not be bound to follow those instructions. They will just pay the initial beneficiary, who is then free to do as they choose with the payout.
You can see how complicated this may get and why it could lead to disputes, so it’s crucial for you to ensure that all of your paperwork is in order when doing your estate planning.