This information is intended for non-specific/general use only. Please consult your tax, legal or professional advisor with respect to your personal situation.
1) Should I name my estate as beneficiary?
No. This measure should only be considered in very unusual and specific situations. By naming your estate as beneficiary, you expose the proceeds of the policy to potential state inheritance and federal estate taxes. Additionally, creditors now have access to the funds since many states protect beneficiaries such as spouses, children, siblings, etc., but not an insured’s estate. Your state of residence and personal financial situation must be considered, but naming a specific individual or organization, as beneficiary will help assure they receive the policy benefits while limiting tax liabilities.
2) Is it advisable to name my minor children or grandchildren as beneficiary?
No. Providing a child with a significant sum of money is often a mistake and does not allow the policy proceeds to be used as intended. Many states tie up the proceeds and make it time consuming and expensive to access the funds. Others require guardians or custodians, not directed by you, to be appointed and regulate the funds at their discretion. To avoid these situations, the establishment of life insurance or testamentary trusts (set up through your will) can be extremely beneficial. Costs for the establishment of these trusts can be minimal and provide the appropriate control to help achieve the goals you set for your children or grandchildren’s future. Consult your tax and or legal advisor with respect to your personal situation.
3) Do I really need to name a contingent beneficiary?
Yes! If the beneficiary you have listed dies prior to the insured person, even if by only a few minutes, and no contingent beneficiary has been named, then the policy proceeds are paid to the insured’s estate. As previously mentioned this can cause significant tax liability?one that could be avoided by the designation of a contingent beneficiary. The naming of a contingent beneficiary does not affect the payment of the policy proceeds if the primary beneficiary is still alive. The contingent beneficiary has no rights to any policy proceeds unless the primary beneficiary has predeceased the insured person.
4) Should I be the owner of my policy?
The answer to this question depends on the size of your estate. If the amount of your estate, including your life insurance, does not exceed the current unified tax credit limit, then owning your own policy does not cause any federal estate tax liability. However, if your estate does exceed the unified tax credit limit then the ownership of your own policy increases the size of your estate and can raise your estate tax liability. In many cases a spouse can act as the owner and eliminate this potential problem. Please consult with us or your legal counsel if you feel this circumstance may apply to you.
5) How often should I review my policy?
We generally recommend a review every two to three years. This does not mean changing policies or companies unless there has been a change in your underwriting eligibility (le: quit smoking, improved health, lifestyle/avocation change, etc.). We suggest reviewing the ownership and beneficiary designations along with other policy features to assure that any changes that have occurred over the years have been addressed. Many people forget to add their new born children to a new policy or make changes to the primary and contingent beneficiary designations once the policy is in force. Be sure that the people you want to benefit from the policy proceeds are appropriately named and the policy reflects your most recent desires.