A life insurance policy ensures that the next generation will have substantial financial assets at their disposal. Many parents see this as a way to provide financial security for their adult children and grandchildren. For instance, you may have purchased a life insurance policy when you had your first child, naming them as the beneficiary so that they would be taken care of if something happened to you.
However, that may have been decades ago, and you thankfully have not had to use the life insurance policy. Now you are drafting an estate plan, and you want to split that policy between multiple beneficiaries, rather than just giving the entire payout to your firstborn child. Can you leave these instructions in your will?
2 main options
You can address this in your estate plan, but generally not through your will. Instead, you need to update the beneficiary designation. You can name multiple beneficiaries and the life insurance company will pay them as instructed when you pass away.
But if you don’t update that designation and you just leave instructions in your will, the life insurance company is not going to read or follow your will. They will just follow the beneficiary designation.
A second option is to use a trust. You could create a trust and name a variety of beneficiaries, and then you can make the trust the beneficiary of the insurance policy. When you pass away, the life insurance payout funds the trust and the trustee – who you get to choose – distributes the assets to your beneficiaries.
This can be a complicated process, so be sure you know what options you have as you make an estate plan.