If you have a life insurance policy, the value of that policy may be higher than any other asset you own. Even if it is not, it is still going to be a very significant financial asset. You got the policy because you wanted to provide stability for your family, and you still want to do that even after you pass away.
But you know that estate planning is much more than just having life insurance. As you put together the rest of your plan, how does it need to address that policy?
You don’t need to put it in the will
The first thing to note is that you don’t have to put your life insurance policy into the will. Most of your other financial assets are just going to become part of your estate, and then your will is a way to divide them between your heirs.
But with the life insurance policy, you already chose the beneficiary designation when you bought it. It’s going to be distributed in accordance with that designation. If your will says something different, the life insurance company doesn’t have to follow it. So the best thing to do is just to make sure you have the right beneficiaries named.
You could put it into a trust
If you want a bit more control over the money from the payout, you could consider creating a trust. The beneficiary for your policy doesn’t have to be a person, but you could name that trust instead. When you pass away, the life insurance policy then pays out into the trust.
After this occurs, then the rules from the trust govern how the money is passed out to your heirs. Maybe you set the trust up to pay for college tuition, for example, or maybe you just chose a trustee and gave them the discretion to be in charge of making these decisions. The nice thing about this is that you’re not just giving your heirs a large sum of money at once and allowing them to do anything they want with it. The trust will dictate how they use it, so you know that it’s going to be beneficial to them.
Creating your plan
If you’d like to set up your plan, especially if you have complicated financial questions about how it should work, it’s very important to explore all of your legal options.