1) Only naming a primary beneficiary, or not being specific enough
2) Naming a minor child as a beneficiary
Life insurance companies will not pay proceeds of the policy directly to a minor child. Create a trust to avoid this issue and name the trust as the beneficiary of the policy. You can also name a reliable adult as the beneficiary, or name an adult custodian for the life insurance proceeds. If you don't take this into account, the court can appoint a guardian to handle the proceeds until the child reaches 18 or 21 depending upon the state. This can be a costly process.
3) Not thinking about possible probate
Many people rely on a written will to express their wishes and pass their assets to their family and others. Probate however, does not allow the policy proceeds to pass directly to the people that you want to receive it. The will must go through probate and this can be a lengthy (and expensive) process. By establishing a trust, you can possibly avoid these issues and get the proceeds to your family quicker.
4) Taxes, taxes, taxes
Many times, life insurance death benefits are generally tax-free. An exception is if the policy holder is the owner of the policy, but another is the named insured. You can name a beneficiary of the policy, but this is considered a taxable gift.
5) Disqualifying a beneficiary from Government Benefits
A less common mistake that people can make is to disqualify their beneficiary from government benefits they may be receiving for disabilities or other circumstances. Government benefits are often tied to the financial circumstances of the individual and receiving proceeds from a life insurance policy may disqualify them from needed help. In addition, there is a possibility that some proceeds may have to be reimbursed to the government for benefits paid. Again, consulting a financial professional and an estate attorney can help you clarify any issues that may exist with your life insurance policy.
Bogetto & Associates can help!
Let our St Louis financial advisers help you with your life insurance needs. We can help you setup the right policy, and help you avoid any beneficiary mistakes. We will listen to your questions and provide you with any advice you need. Life insurance is very important for your piece of mind and your family's financial future...let Bogetto & Associates help!
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Securities offered through First Heartland Capital, Inc. Member FINRA/SIPC
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Bogetto & Associates does not provide legal or tax advice. These topics are discussed in conjunction with your CPA, Tax Advisor and Attorney.