Choosing a Life Insurance Beneficiary:
Who should receive the insurance policy
proceeds?
When naming your spouse:
1. Your spouse may be hounded with bad
investment advice if they are not well versed in finance.
2. There might be pressure on your spouse for gifts or loans from other family members.
3. If the proceeds are paid directly to your
spouse, they cannot fund a credit shelter
trust to take advantage of the current
$675,000 applicable exclusion amount.
An overfunded marital deduction often
ultimately results in higher estate tax.
4. The proceeds may become subject to
rights and claims of your spouse’s next
spouse.
5. The proceeds become subject to the claims of your spouse’s current and
future creditors.
When naming your children:
1. Your children my not have the maturity to handle money.
2. Your children or spouse may be hounded with bad
investment advice
3. Designate your then living
issue or descendants per stirpes or by
representation so that children of a deceased
child will take the deceased child’s share.
4. You
could be excluding a future grandchild through a
deceased child.
When naming your Estate:
1. You can use of spendthrift trusts so dependents aren't given a huge lump some at once to go and party.
2. Your benefit may not qualify for the
inheritance tax exemption provided by
your State since there is not a
named beneficiary. In such states, a
higher tax may be owed.
3. Because of lower estate taxes, the estate will be larger and may result in
higher executor fees and attorney fees —
especially when the fees are based in part
on the size of the probate estate.
4. The proceeds will become part of your
probate estate and may be subject to
creditors’ claims (though some state laws
protect the proceeds from creditors).