Term life insurance

You can designate beneficiaries anyway you'd like. Then there's the argument on who should own the policy. If you own it the proceeds go to your estate. If spouse owns it, it goes to her but then you couldn't name benificiaries.. I don't know if taxes would be different in each situation.

Probably not - see

Sure. The Owner of the policy may change the beneficiary designations as he or she likes.

Taxes are complicated. There is no income tax due on life insurance proceeds, but there may be estate tax due on it depending on the ownership (not the beneficiaries!) of the policy.

There are three people involved in a life insurance policy: The Owner - pays the premiums, chooses the beneficiary, may cancel the policy The Beneficiary - receives the proceeds The Insured - the person opon whose the policy will pay out

Often two of those will be the same person, often it's not a good idea. All three may be different people, and two of them don't even have to be living persons (owner and beneficiary may, for example, be a corporation or a trust).

If the owner is also the insured, when the person dies, the proceeds get paid to the beneficiary, but the value of the proceeds is included in valuing the deceased person's estate for estate tax purposes. If you have a sizeable policy or a sizeable estate, this is a very bad idea.

An alternative: set up an ILIT (Irrevocable Life Insurance Trust) to own the policy. If it's set up and funded correctly, the policy (and thus, the proceeds when paid on death) are not in the deceased person's estate. Additional benefits - the trustee may adjust the beneficiaries as appropriate and if the trust itself is the beneficiary, the trustee may dole out the benefit itself according to the way the trust was set up in the first place - things like investing the proceeds and paying out income from them to one beneficiary and leaving the rest to another. Talk to an estate planning attorney about this if you're serious about it. ILITs are very powerful estate planning tools.

Usually, one does not want one's estate to be the beneficiary of the policy, unless one doesn't want to manage beneficiary designations in multiple places, but these days, beneficiary designations are the fact of life for many things (ie. IRAs,

401ks, etc) regardless of one's will. If you're fairly certain that the estate will be estate tax free, sure, the beneficiary may be the estate and the proceeds will simply be distributed according to the will.

Another possibility, if you're concerned about estate taxes, again, is to have the beneficiaries be the owners of the policy. They are then responsible for paying the premiums, and they, as owners, may change beneficiaries as they like.

Bread, so, can I specify that a percentage of life insurance (80%) to one person, and another percentage (20%) goes to another?

Thanks for an interesting post.

i

wrote

That was my choice. I owned my wife's policy and she owns mine. I still had to pay the premiums on both :-( One day I was sitting on the back porch and thought about it. If I die, I can't collect.

A typical life insurance policy form will have a section which looks like this:

Primary Beneficiary: Name: ______ Relationship : _________ Share: ___% Name: ______ Relationship : _________ Share: ___% Name: ______ Relationship : _________ Share: ___%

Contingent Beneficiary: Name: ______ Relationship : _________ Share: ___% Name: ______ Relationship : _________ Share: ___% Name: ______ Relationship : _________ Share: ___%

However, if the beneficiary is a trust, it'll more usually just all go to the trust and the trust will take care of the primary and contingent beneficiary issues itself.

Generally, unless you specify specific percentages, proceeds will be split evenly between the primary beneficiaries. If all of the primary beneficiaries predecease you, then it gets split between the contingent beneficiaries. If you want more complex management (ie. going per stirpes to decendents of one of the primary beneficiaries, etc, you probably want a trust. Also, if you have minor children, you very likely want a trust as well, at least in the unfortunate event that both you and your spouse die before the children are adults, perhaps with a spouse as the primary beneficiary and a trust for the kids as a contingent one).

If your estate is or is likely to be big enough that you are concerned about estate taxes (and don't forget that you need to factor in things like the value of your 401k, your primary home, and, hopefully, the fact that you have many years to keep accumulating wealth!), you may want to talk to an attorney who specializes in estate issues, in particular, for writing an ILIT with what's called a "crummey provision" and choosing an appropriate trustee. It's really not that big a deal, but it does need to be done just right. You may be able to work with a financial planner and/or insurance guy to decide if such a thing makes sense for you before contacting an attorney, but when the time comes to actually write one of these, you really need an attorney.

Hope that helps.

I'm not sure if you're kidding or not. There isn't much need to have your spouse be the owner if your spouse is also the beneficiary, since there are no estate taxes on anything paid out to your spouse. It's called the "unlimited marital exemption".

(just making sure)