Many people in Texas and elsewhere have life insurance policies that are not appropriately coordinated with their estate planning goals. This should be done in consultation with a financial planner or an experienced estate planning attorney. The application of life insurance proceeds can be a valuable addition to an arsenal of tools that are used to achieve the individual’s goals for providing for family members.
There are many things that the client and the estate planning attorney will likely want to review. First, the existing policies should be reviewed to determine their current relevance and whether they need to be updated to take advantage of new options in life insurance benefits. The existing policies must be preliminarily reviewed to see that there are beneficiaries in each policy and that the beneficiaries are still the ones to be selected.
Remember that insurance proceeds do not run through probate and do not have to be listed in any probate listing of assets. The one exception is where there is no beneficiary listed on the policy and that situation requires treating the proceeds as an asset of the estate. Therefore, it is important to keep current on beneficiary designations.
A full review with the estate planning attorney will usually clear up deficiencies in the policies and lead to updating policies where necessary. It is important to note that Texas and federal law generally allows the trading of an “old” policy for a new one without having to pay the normal tax that would be due on insurance proceeds that are treated as income. It may also be preferable to take term policies and convert them into a financing vehicle that will serve more long-range goals. There several other strategies that will possibly be helpful but the best way to do it in an efficient manner is to have one comprehensive review with the estate planning attorney, along with any certified financial planners that may be on one’s team.
Source: wealthmanagement.com, “Life Insurance Still Matters in Estate Planning“, Oct. 31, 2016