Three of the most popular forms of estate planning are the last will and testament, the living trust and beneficiary designations. Beneficiary designations include assets such as life insurance policies and retirement plans. One of the advantages of passing money to a designated beneficiary through a life insurance policy is that your beneficiary can collect his money as soon as you die, without waiting for probate proceedings to close.  

State and federal law, however, heavily influence how a life insurance beneficiary designation fits into your entire estate plan. Relevant issues could include probate, taxation and divorce, among others. In light of this, your life insurance beneficiary designation needs to be coordinated with your entire estate plan with an eye towards possible consequences.

Your Last Will and Testament vs. Your Beneficiary Designations

Your life insurance policy does not override your last will and testament. Suppose, for example, that you name your son the beneficiary of your life insurance policy. Later, you amend your will to leave all of your estate to your wife. In this case, your new will does not affect the life insurance beneficiary designation, and your son will receive just as much money from your policy as he would have if you had not amended your will. 

Beneficiary Designations and Divorce

Suppose you name your wife the beneficiary of your life insurance policy. Afterwards, you divorce your wife, but you refuse to replace her with another life insurance beneficiary, because she will be doing the lion’s share of raising your three children after the divorce, and you feel she deserves compensation. 

Assuming the life insurance proceeds were not awarded to your wife in divorce proceedings, under Florida law, your designation of your wife as beneficiary is automatically revoked as soon as the divorce is completed, unless you make a special effort to reaffirm the designation. Obviously, this law, which was well-intended, can lead to negative unintended consequences for some people.

Life Insurance Beneficiary Designation vs. Living Trust

If you establish a living trust, it becomes irrevocable upon your death, and its contents are not counted as taxable income to your beneficiaries except to the extent that the trust actually distributes income to them. Naming your beneficiary on a life insurance policy, by contrast, could result in the entire value of the policy being treated as the taxable income of your beneficiaries by both state and federal tax authorities. 

We Stand Ready

When it comes to successfully integrating a life insurance policy into your estate plan, there are a myriad of potential mistakes you might make that could frustrate your purpose or even defeat it altogether. We know where the cracks in the system are, and we know how to avoid them. Additionally, it is always best to understand all of your options before making a decision. 

Contact estate planning attorney Jose Lorenzo by calling (305) 999-5411, completing our online intake form, emailing us at jml@joselorenzolaw.com or visiting one of our offices in Coral Gables and Ft. Lauderdale. We handle cases throughout Florida.