Life Insurance has a purpose…it provides for your family if you die unexpectedly.

When you have a permanent life insurance policy, the death benefit goes to the beneficiaries you have designated free of income tax.

When you set up your life insurance policy, you will be asked to designate  beneficiaries.  These are the people you want to receive your assets when you pass away.

Often people list their spouse, children, grandchildren etc. without giving it a second thought.  Thing is, it is often more complicated than that.

Naming your beneficiaries without careful consideration could cut into your loved ones’ inheritance or even lead to a court battle among relatives.

Here is a quick list of Do’s and Don’ts to help you in this process so you can rest easily knowing that your intentions will be carried out after you’re gone.

Consider all of your assets. Some accounts — retirement plans, life insurance and annuities among them — require naming beneficiaries. Even though those are the common ones, did you know that you also have the option to list beneficiaries on bank accounts, stocks and bonds, real estate and military death benefits? Doing so may keep more of your assets out of court, which can also tie up the assets after your death.

Don’t Name your estate. Rather than naming an individual beneficiary, some accountholders list their own estate. That’s usually a bad idea. Naming your estate usually results in the assets being put into probate — the legal process that determines the final disposition of your estate. What happens as a result of this is that you have less control over how and when the money should be distributed, and it could also trigger or increase estate taxes.

Have a backup. If you only name one beneficiary and that person dies before you do, the account ends up in — you guessed it — probate. It’s wise to list contingent beneficiaries for each account in case your first choice is no longer around.

Don’t List young children. Many accounts won’t pay out death benefits to minors. The assets would have to go through another court process to appoint a guardian — not necessarily someone you know — to manage the money until the child turns 18. To avoid this create a living trust so you can name your chosen trustee as the beneficiary.

Make updates. Changes in your life might cause you to reconsider your beneficiaries. Updating your beneficiaries is as easy as calling your financial provider to request and complete a simple form. Many companies offer the form online.

Don’t Assume your will is all-powerful. In some cases, your beneficiary designations may override your will. So, even if you’ve created a will that leaves everything to your kids, if you have a different beneficiary on your life insurance, that person could still receive your life insurance proceeds.

Seek professional help. As laws change and financial and family lives grow more complex, an estate planning attorney and financial planner are professionals that can help you make sure your loved ones get what you want for them.

I hope these tips help you and if you have any questions please don’t hesitate to contact our office!