Chances are that you no longer remember whom you’ve named as the beneficiary of your life insurance policy. You should find out. Why? The beneficiaries that you listed with your life insurance company trump any beneficiary designations that you may have made via your Minnesota Will.
It’s also important that your loved ones know that you have a life insurance policy and where to find it. Otherwise, the life insurance money may go unclaimed!
Life insurance beneficiaries may be individuals, the trustee of your trust, charities or “my estate”. You can name both primary beneficiaries and contingent beneficiaries. Contingent beneficiaries inherit only if the primary beneficiaries do not survive you.
A key advantage of life insurance proceeds is the relative speed with which proceeds are typically paid out to the beneficiaries. Also, the payments are in cash and are typically free of income taxes.
It’s best not to name “my estate” as the beneficiary because some key benefits of life insurance are then lost. For example, when “my estate” is the beneficiary, the life insurance proceeds are subject to the probate process and all of the costs and time delays that probate entails.
Another disadvantage of naming “my estate” as the beneficiary is that the insurance proceeds are then a source of cash for paying any of the deceased’s creditors. If “my estate” is not the beneficiary, then Minnesota law states that life insurance proceeds transfer to your beneficiaries free from any claims that may have been made against your estate.
When individuals, the trustee of your trust or charities are named as your beneficiaries, the proceeds are paid out rather quickly. Typically, these beneficiaries can collect life insurance proceeds simply by providing the insurance carrier with a certified copy of the death certificate and by completing a form provided by the insurance carrier.
Minors (persons under age 18 in Minnesota) should typically not be named as beneficiaries of life insurance policies for reasons that are beyond the discussion in this blog.
Selecting beneficiaries and designating ownership of assets are an important part of the estate planning process. It’s prudent to consult with an attorneyy whose primary focus is estate planning.
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