When people are doing their estate planning, they often discuss their life insurance policy. An elderly person may know that they have a substantial amount of life insurance, and they just want to make sure that it gets divided appropriately between their adult children. They think that they need to use their will to do this, giving instructions to the estate executor.
But in most cases, this is not actually how it works. A life insurance beneficiary designation takes precedence over an estate plan. So simply noting how you want the life insurance to be divided in your will does not necessarily make those changes in reality, if it is in conflict with the beneficiary designation.
For instance, if you have three children and you want them all to split up the life insurance payout, you need to name them all as equal beneficiaries. If you only name one child and then put in your will that the money should be divided, that one beneficiary is still going to receive the entire payout. Whether or not they divide it with their siblings is up to them.
Are there any other options?
Yes, in some cases, you can use the life insurance beneficiary designation to specify that a trust should receive the payout. An individual does not get the money, but that money funds the trust or the trust owns the life insurance policy before you pass away.
In any case, doing this means that the rules of the trust will dictate how the asset should be divided between beneficiaries. You can choose a trustee and tell them to split the money up equally between multiple parties.
It is important to know how these documents work together, what limitations you may face and what legal options you have.