If you aren’t thorough with your estate planning, you could create conflict, even with the best intentions, says a recent article from yahoo! Entertainment titled “Life Insurance Beneficiary vs. Will: Do I Need Both?” You still need a will even if you are leaving an insurance policy via a beneficiary designation.
When you die, you can use life insurance beneficiaries and wills to bequeath assets to others. However, they can work together or against each other, so meticulous planning is vital. Your life insurance beneficiary designation supersedes your will, so you must align your life insurance policy and will to save heirs from stress, confusion, and possible litigation.
Here’s how they work and which takes precedence.
A life insurance beneficiary is a person or entity, like a charity, named to receive proceeds from your life insurance policy when you die. Who you designate as a beneficiary doesn’t have anything to do with who receives other assets from your estate, such as property or financial accounts. Your beneficiary will receive payment from the life insurance policy according to the terms of the policy.
A will is a legal document declaring who should receive your possessions after death. The will does not define the destination of one specific asset, like a life insurance beneficiary. Instead, it contains a list of the heirs to who you wish to receive your assets.
If you have minor children, a will is also used to assign legal guardians who you wish to raise your children in your absence.
Your will needs to go through probate court before beneficiaries receive anything. The probate process confirms your will’s authenticity, interprets the language in the will, and authorizes the named executor to carry out your intentions. Your life insurance policy goes directly to your beneficiary without probate review.
Does a life insurance policy override a will? If you designate one person to receive your life insurance policy proceeds and then name a different person in the will to receive the profits, the person named in the life insurance policy will win. Any intentions in the will don’t influence or have any legal power over what’s in the will.
Your beneficiary designation in the policy is the sole determining factor, with one exception. The life insurance proceeds will go to your estate if the beneficiary passes away before you and no contingent beneficiary is named. Your executor will then disburse assets from the estate according to the beneficiaries named in your will. So, to ensure that your assets transfer according to your wishes, you still need a will even if you are leaving an insurance policy via a beneficiary designation.
Do you need a will? While a will does not influence your life insurance, it’s a critical part of your estate plan. The probate court uses the will to determine who receives assets and names an executor. Just be sure that your will, any trusts and named beneficiaries on life insurance, and other accounts are aligned to avoid creating friction between loved ones. It’s best to have a will to bring cohesion to your estate plan instead of relying on separate beneficiary designations.
Reference: yahoo! entertainment (Feb. 6, 2023) “Life Insurance Beneficiary vs. Will: Do I Need Both?”
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