I’m asked frequently by financial advisors and insurance professionals how they should advise their clients on filling out the beneficiary designation form on their life insurance policies. My answer to this questions is that “it depends”. However, in most cases, it is best to list your revocable trust as the primary beneficiary of your life insurance policy.  

Here is why. Consider the following scenario:

Husband and wife get into a car accident and assume that husband has a $1MM life insurance policy. Husband dies immediately and wife is seriously injured and on life support. The life insurance company will pay out to her in her name and then if she dies shortly thereafter, the proceeds from that policy will then need to go through probate to reach the beneficiaries (if she has a pour-over will) or her heirs at law (if there is no will or pour-over will).

The fees to the Executor and Attorney (if California) total approximately $46,000 if that was the only asset in the probate case plus court filing and referee fees (fees go up if there is other property that is part of the probate estate). In addition, there is a huge delay in getting the money to the beneficiaries/heirs due to the probate case filing and the whole process is open to public inspection.

Additionally, if this happens and the couple has minor children, a Guardian of the Estate for the minor children will need to be approved by the Court and the kids will get the money at age 18. Hardly what most parents would want. Better to make sure it is protected by a trust.

Also, what if wife is fine, gets the $1MM check from the insurance company but never transfers it to the revocable trust. I see so much of this in my practice it’s ridiculous. People don’t always do what they should after someone dies either because they don’t want to deal with it or just out of ignorance.

In most cases (depending upon how the trust is drafted), the Surviving Spouse will have full access to the money even if the trust is listed as the primary beneficiary, so why not take the precautionary step and have the trust listed as the primary beneficiary?

For more valuable information on estate planning, go to www.GeigerLawOffice.net, call our office at (760) 448-2220 or email us at [email protected].

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