One of your most valuable assets is a life insurance policy. It’s been a decade since you purchased it, but it gives you a sense of security. You know that that money will be provided to the next generation whenever you pass away, so you don’t have the same level of concern regarding their financial future. You can still provide for your adult children and your grandchildren far into the future.
However, you may be planning your estate and considering exactly how you want to divide the payout. Maybe you have multiple beneficiaries and you want to split it up between them. Can your estate plan accomplish this goal?
Beneficiary designations
The first thing to know is that the life insurance policy already has a beneficiary designation, and this overrides an estate plan. So, if you named only one individual as your beneficiary, regardless of what your will states, that person will get 100% of the life insurance proceeds. If you want to divide that money during the initial payout, you need to name multiple beneficiaries.
Using a trust
However, there is another option, which is to set up a trust. The trust will not have any funds yet, but you simply name the trust as the beneficiary for the life insurance policy. When you pass away, the trust controls the money. Your trustee can then make distributions to your beneficiaries in accordance with the instructions that you specified. Not only can you split the money up, but you could designate it to be used for a specific purpose, like a college education.
This type of estate planning certainly can become complex, so be sure you know what legal steps to take and seek legal guidance as necessary.