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Life insurance and your estate plan

On Behalf of | Mar 12, 2022

If you have a life insurance policy and you’re doing your estate planning, you’re likely thinking about how the two are going to work together. In fact, that life insurance policy may be one of the most valuable assets that you own.

One thing that you need to make sure you understand is that the beneficiary designation on your life insurance policy is the most important part of this process. It is more important than any designations made in a trust or in a will. If there is a conflict between the two, that beneficiary designation is going to come first. This may mean that you don’t even need to enter your life insurance in your will, and it certainly means you need to understand how they work together if you decide to do so.

An example of how this could create conflict

Imagine that you have two children, a son and a daughter. When you bought the life insurance policy, you named your son as the beneficiary. When you write your will, you state that the life insurance policy should actually go to your daughter.

At the time of your passing, the life insurance provider will simply look at the beneficiary designation and pay the money to your son. Your daughter can argue that you clearly wanted her to have it because that’s what you wrote in the will, but it doesn’t make any difference to the life insurance company. The only difference it could make is if your son decides to share the money with your daughter, but he has no obligation to do that.

Estate planning with major assets can certainly get complicated, and it’s important to understand all of the options you have