Many people get life insurance. And one of the biggest mistakes they make is in picking beneficiaries. You are free to name nearly any person as your beneficiary. For most individuals, it’s usually a close family member. Nevertheless, you could select any type of competent person and even an entity, such as a charity.

Beneficiary designations can be made by naming specific individuals or entities. Use complete names to prevent confusion. You can be more certain by describing birth dates or social security numbers… or for charities… their Federal Tax Employee Identification Number.

You can name many beneficiaries to receive equivalent or unequal shares. For multiple beneficiaries, utilize percents instead of real dollars. Dollar amounts can create confusion, particularly if the life insurance policy has a value that fluctuates.

You may also choose a trust fund as a recipient. This can be useful in benefiting minors or handicapped persons. Your main beneficiary will certainly always get policy proceeds initially. If this is a person, she or he must be alive when you die. If that specific recipient is deceased, the plan continues to your next recipient.

Therefore, it is necessary to identify one or more contingent beneficiaries. If you and your key beneficiary pass away at the same time, your key beneficiary is presumed to have actually passed away first. Consequently, if there were no contingency plan, you would not have a named recipient. The life insurance would go to your estate. Having appropriately named beneficiaries prevents having your life insurance policy proceeds from traveling through your estate. This could protect against possible inheritance tax in addition to probate expenses.

For minors, you need to be particularly careful in stating beneficiaries. You should designate life insurance proceeds to a custodian for the benefit of minor beneficiaries.

Also, make certain to review your recipient classifications on a regular basis and if needed, make revisions because of marriages, divorces, births, and fatalities.

It is important to focus on two primary objectives in selecting beneficiaries: ensure your designations accomplish your objectives, and avoid unnecessary legal debates and taxation.

If you have life insurance questions, we have answers! Be sure to reach out to learn more about properly structuring life insurance to meet your specific needs.