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Many potential considerations in naming insurance beneficiaries

A sound estate plan in any given case will invariably consider a number of factors, with the ultimate disposition of wealth and assets being a highly individualized consideration. As has been noted many times in estate planning, no two cases are alike.

Given that, the guiding hand of a proven estate planning attorney will draw attention to everything that might be relevant to future wealth distribution decisions.

One such matter that is often overlooked and even deemphasized by many persons is the naming of beneficiaries under a life insurance policy, with the potential for mistakes being quite high in a number of instances. As noted in one recent estate planning article, the repercussions of an error in this area "can be heartbreaking and expensive."

The reasons for that are many. Consider at the outset, for example, a case in which insurance proceeds are left directly to a minor. No court will allow for the release of money to be directly managed by a child. An experienced estate planning attorney will ensure that the intent to ultimately have a child receive insurance proceeds is effected through the creation of an appropriate trust or the appointment of an adult guardian.

Care, too, must be taken where a dependent with special needs is involved. The assistance of a proven attorney can be flatly invaluable in this instance, given that a policy beneficiary can potentially lose eligibility for government assistance through receipt of an inheritance or gift.

Many other considerations can also arise with beneficiary naming. Texas, for example, is a community property state, where designation to a party other than a surviving spouse could lead to problems if that spouse has not waived rights in writing.

Many people simply assume, incorrectly, that a will trumps all other documents. That is decidedly not the case with a life insurance policy, which is a contract. The terms within it will guide disposition outcomes.

The bottom line here: Beneficiary designations need to be well-considered and duly attended to in necessary detail and with all due consideration for the legal instruments that need to be considered and potentially created to optimally promote the intentions of all parties.

An estate planning attorney with a deep wealth of experience can help ensure that plans are properly put into place and future mistakes avoided.

Source: Fox Business, "Naming life insurance beneficiaries: 10 ways to screw up," May 16, 2013

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