Life insurance can be such an important tool in estate planning. It can help with taxes, fees and have a peace of mind. There are some misconceptions about life insurance, that all you have to do is to ensure the proceeds of the insurance will be available to the beneficiaries. There’s no sure thing that your beneficiaries (family such as spouse or children) will get the proceeds of the life insurance. Let’s look at some examples why:

Example 1: Dave has designated his wife Betty as the beneficiary of his life insurance policy. Dave passes away from an accident and Betty received the proceeds of the life insurance. Betty remarries and she adds her new husband’s name to the bank account where she deposited the life insurance proceeds. This leaves the death benefit of Dave’s life insurance to her new husband instead of her children as she and Dave discussed before his death and which is what she created in her will.

Example 2: A single mother named Debbie designates her 11-year-old son Marco as the beneficiary of her life insurance. She dies the following year when Marco is twelve. Marco is not an adult and he cannot receive the life insurance death benefit directly. The court will name a relative as a guardian or a conservator for Marco until he is of age. When Marco turns 18 years old, his inheritance has been partially spent down on court costs, attorney fees, and guardian or conservator fees. Of course, there’s also inflation to consider. Debbie planned for the life insurance proceeds would support Marco’s life and college plans, but the cost, lack of proper information and proper planning did not come out as she planned for.

One Solution: Use a Trust as the Beneficiary on Your Life Insurance

Estate planning is a proper way of passing on assets by placing them in a trust and having your loved ones such as spouse and children as beneficiaries of the trust. The same approach goes for the death benefit of the life insurance proceeds. The trust can be designated as the beneficiary of the life insurance policy and the death benefit will be distributed properly within the trust. There are two common way to do this:

Revocable Living Trust (RLT) Is the named beneficiary

For those that have already created a trust, this option works out well including having a modestly sized estate. By designating your RLT as the beneficiary of the life insurance policy, the death benefit will be payable to the beneficiaries of the trust itself. This method will coordinate the death benefit of the life insurance with the rest of your estate plan.

Set up an Irrevocable Life Insurance Trust (ILIT)

To add an extra layer of protection, setting up an ILIT can both own the life insurance policy and be named as the beneficiary. As The Balance explains, this not only protects the death benefits from potential creditors and predators, but from estate taxes as well.

If you have a life insurance that you own and would like to know what is the best plan for you and your loved ones, call us and we will help you. Because everyone who’s purchased life insurance needs to take an extra step to ensure your loved ones’ financial future. To discuss your best options for structuring your life insurance estate plan, give us a call at (909) 256-6702 to schedule your FREE consultation. We are located in the Claremont Village near Upland, La Verne, Pomona and Rancho Cucamonga.



341 W. 1st St. Suite 100
Claremont, CA 91711

MARIVEL M. ZIALCITA is the founder of MMZ LAW, A Professional Corporation, where she practices in the areas of Elder Law – Medi-Cal Planning Asset Protection, Trust & Estate, Special Needs, Conservatorship, Trust Administration, & Probate. Ms. Zialcita is a frequent speaker on trust and estate matters and holds memberships in the State Bar of California, Trust and Estate Section, The San Bernardino County Bar Association, Wealth Counsel and Elder Counsel. She currently assists in the pro bono legal services program at the James L. Brulte Senior Center in Rancho Cucamonga, California. She is based in Claremont but assists clients throughout Southern California.

This information is educational information only and not legal advice.