Estate Planning Pitfall For most people, one or more life insurance policies are key components of their estate plans. Life insurance not only provides your loved ones with the liquidity they need to pay estate taxes and other expenses, but it also creates new wealth for your family. A life insurance policy’s beneficiary designation is extremely important but easily overlooked. Many people make the mistake of naming their estate as beneficiary, which can result in state inheritance taxes, exposure of the insurance proceeds to creditors of your estate, needless expense and delay as the proceeds go through the probate process, and, potentially, an estate tax liability where there otherwise would be none. By properly choosing your beneficiary, you’ll likely avoid all of these problems. But don’t let this give you a false sense of security. If your beneficiary dies before you, and you don’t designate a replacement, the insurance proceeds likely will be paid to your estate just as if you had named your estate as beneficiary in the first place. This can happen, for example, if you forget to update the beneficiary designation or if, tragically, you and the beneficiary die in the same accident. The solution? Designate at least two backup (or contingent) beneficiaries. That way, even if the primary beneficiary dies before you do, the life insurance proceeds will go to a backup, avoiding probate and shielding the proceeds from creditors’ claims and unnecessary taxes. You might even consider having a life insurance trust acquire and own the policies on your life. Doing so could further assist you in avoiding the potential problems caused by having your policy survive longer than its beneficiary. • |