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8 Tips for Naming Your Life Insurance Beneficiary
Jul 31, 2013
Selecting a life insurance beneficiary is one way to leave money to someone after you are gone. But determining who to choose as your beneficiary isn’t always easy. Here are some tips to help you avoid potential problems.
1. Don’t choose a minor. Normally, insurance companies will not pay death benefits directly to minors. A court-approved guardian must be named.
You can consider naming a trustee for a minor who is the beneficiary of a trust you set up. This will help ensure the effective management of the procedure.
2. Consider who in your life can take on this responsibility. This person will be charged to administer the assets and ensure that your wishes are carried out. Consult your financial adviser about this.
3. If you have children, have you thought of what could happen if you leave more, or all, of your money to just one of them? This could create real conflict. When you name one of multiple children as the sole beneficiary, he or she is legally entitled to keep all of that money.
4. Do your research. What if your beneficiary has credit issues, mental health problems, or even drug issues?
5. Think carefully before you leave money to your estate. Your estate could be a shelter for tax planning, but there are many drawbacks:
• Executor fees could increase
• Federal and state taxes can rise
• Proceeds may be subject to creditors’ claims
6. If your beneficiary is not a U.S. citizen, you can take some steps to avoid unnecessary complications. Designate a testamentary trust under which a special qualified domestic trust is created to run the assets for a non-citizen spouse.
7. You will want to think carefully before establishing an irrevocable trust as a beneficiary. When you do, you surrender control of the trust as well as the right to change the beneficiary. Keep in mind that as soon as the trust is irrevocable, it cannot be changed.
8. It is advisable to update your life insurance policy in accordance to certain life events, such as:
• When you get married
• When you get divorced
• When you have a child
• When a spouse or loved one passes away
Be careful when naming your life insurance beneficiaries and always remember to:
• Talk to your attorney or accountant, or both, about the possible consequences of your decisions.
• Be precise and clear to avoid potential conflict.
• Review and revise your choices on a regular basis, especially after life-changing events, such as marriage, childbirth, etc.
Make the right choices to protect your loved ones with the help of life insurance.
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