Beneficiary Designation – Should Your Life Insurance Beneficiary be an Individual beneficiary or your Estate?

Your beneficiary designation will determine who benefits from your estate in the event that you pass away. When buying life insurance, most people assume it’s best to name an individual beneficiary — for example, a spouse or a child. However, there are times when it makes more sense to have the proceeds of your policy go to your estate. This means making your beneficiary designation your estate and not an individual.

Here are the ins and outs of leaving your life insurance to your estate. Naming an estate as your beneficiary designation can be a good choice when you want the proceeds to meet non-traditional life insurance needs — meaning, other than to provide for a spouse or children - or needs that go beyond individual beneficiaries.

When your beneficiary designation is your estate, the proceeds of the policy are distributed according to the terms of your will, along with your other property. Your insurance proceeds are brought together with all your other assets.

Consider whether you think you’ll need to change your estate plan as you move through life. Naming your estate as your beneficiary means changes can be made more simply: through your will. You won’t have to worry about changing beneficiaries on insurance policies.

Here are some other reasons you might want to consider naming your estate as your life insurance beneficiary. You can use this strategy to:

Leave money to charities. You can specify in your will how much of your estate goes to each charity and change your instructions at any time, without naming charities as life insurance beneficiaries. Set up a trust. Leaving cash to an estate can sometimes make it easier, as the will can dictate the setup of trusts for children. This can be useful when you want to specify how money left to children is to be spent or to make provisions for children to receive funds when they reach a certain age.

Pay expenses. You can use life insurance proceeds to pay costs associated with your estate. These can include final expenses, debts and tax liabilities. There are a couple of caveats you should be aware of when considering naming your estate as the beneficiary of your insurance policy. They include the fact that policy proceeds (along with the rest of your estate) may be reduced by the cost of probate — the legal process that validates the authenticity of a will. Probate can also delay distribution of assets and your estate may be subject to legal claims from creditors.

However, under the right circumstances, the advantages of naming an estate can outweigh these considerations. If you name your estate as a beneficiary, it’s important to make sure your will is always up to date.  Together, we can explore when and where insurance proceeds will be needed and determine whether naming your estate as beneficiary makes sense for you. For more information about beneficiary designations and whether to name an individual as your life insurance beneficiary or your estate contact Gary Mandel by calling (416) 849-1653 or by visiting www.wecoveryou.ca