10 Common Errors When Naming Life Insurance Beneficiaries That Will Hurt the People You Love – and How to Fix Them

If you make a mistake in naming beneficiaries for your life insurance policy, the people you love will end up being hurt.  Insure.com recently provided a list of the 10 life insurance beneficiary mistakes to avoid.  We elaborate on how they’ll affect you and how to fix them.

1.  Naming minor children.  If proceeds of your life insurance are directed to your minor child (instead of to a trust for his/her benefit), a Judge will decide who controls the proceeds and when your child receives them.  And your child could get access to all of that money at 18! That’s bad news. And unnecessary.  A Personal Family Lawyer® can counsel you on the best way to leave life insurance proceeds to minor children.

2.  Naming a person with special needs.  By naming a child with special needs child or other person eligible for government benefits as a beneficiary, you could unwittingly disqualify them from receiving those benefits. Instead, you could name a special needs trust. We can help you with that.

3.  Not considering community property and/or spousal rights.  You don’t have to name your spouse as a beneficiary, but if you live in a community property state, your spouse will need to sign a waiver before you can name someone else as beneficiary. And, if you name a married adult child as the beneficiary of your policy (without a trust), you could be putting your child’s inheritance at risk inadvertently.

4.  Ignoring tax consequences.  While life insurance proceeds are usually income tax-free, they are subject to the estate tax.  Talk to us about these issues so we can identify any traps for the unwary.

5.  Trying to use your Will.  A properly executed beneficiary designation form always trumps your Will, so don’t make the mistake of thinking you can change beneficiaries by naming someone else to receive insurance proceeds through your Will.  

6.  Failing to update.  Many ex-spouses are enriched by a life insurance benefit because their ex forgot to update the policy’s beneficiary form.  Review your beneficiary designations every time you have a significant life change, or at least every three years.

7.  Not being specific.  You should name your beneficiaries in as specific a manner as possible, which means using their legal names, not just a designation such as “my spouse” or “my children.”

8.  Not informing family or losing track of policies.  If you have a life insurance policy, tell your family about it.  Otherwise, it may be overlooked and the benefit never claimed.  We track our clients’ assets using a Family Wealth Inventory that is updated regularly so no assets are lost after your passing.

9.  Not considering individual circumstances.  If you leave a large sum of money to an adult child with a substance abuse problem or someone not equipped to handle money, this can lead to more problems.  Consider establishing a trust that can protect your beneficiaries’ inheritance.  We can even protect these assets from bankruptcy, creditors and divorce, for multiple generations.

10.  Naming only one beneficiary.  If you name only one beneficiary and that beneficiary dies at the same time, or before you, the proceeds of your insurance could go end up directed by State law or a Judge.  To prevent this from happening, name secondary and tertiary beneficiaries. 

If you would like to learn more about protecting the inheritance you’ll leave behind, call (978) 296-4140 or email info@wilsonlf.com today to schedule a time for us to sit down and talk. We normally charge $750 for a Family Plan Session, but because this planning is so important, I’ve made space for the next two people who mention this article to have a complete planning session at no charge. Don't forget to mention this article when you call or email!

Protecting Your Business From Personal Legal Liabilities

Most small business owners are aware of the importance of protecting their personal assets from business liabilities.  However, the reverse is just as necessary – protecting your business assets from personal legal troubles.  

For example, if you are at fault in a serious auto accident that injures someone and you own a business, the assets of that business could be under attack in a personal injury lawsuit unless you have undertaken the proper steps to insulate your business from personal liabilities.  Here are three things you can do to shelter your business today:

List all your assets.  Make a list of all of your personal assets – both business and personal – including any debt that is secured by the asset.  This list will be the beginning of your process helping you to evaluate your exposure to risk.   

Look into Umbrella insurance coverage.  An umbrella insurance policy covers any claims against you in excess of your basic insurance coverage limits.  By having umbrella coverage, which is typically, not very expensive, you can ensure any judgments against you are paid before your business is put at risk to satisfy a judgment creditor.   Beware though, this type of insurance typically does not cover actions that are negligent, reckless, fraudulent or criminal.  

Consider whether your business entity has extra built in protection. If your business has been set up as a limited liability company (LLC) in a state with charging order protection (and there are 13 states that have LLC Charging Order Protection), you may have extra protection for your business.  If you have an LLC formed in a state with this extra protection and a judgment creditor tries to take your business, they cannot. Instead, all they will receive is a charging order against the business.  This means that they would get distributions only when the other members do, but they would still need to pay taxes on undistributed profits AND they couldn’t even force any profits.  Many creditors would prefer to settle for pennies on the dollar rather than receive a charging order against a business entity. 

Best Form of Protection. If asset protection is extremely important to you, consider irrevocable trust planning.  A properly set up irrevocable trust could protect your business from divorce, creditors or even bankruptcy.  

If you’re a small or mid-size business owner, call us today at (978) 296-4140 to schedule your comprehensive Small Business Structure Assessment and we’ll consider the best asset protection strategies for you and your business. Normally, this session is $1500, when you mention this article and we still have room on our calendar this month, we will waive your session fee.

Wilson, lf is a boutique family-focused boutique law firm specializing in small business planning located in Andover, MA and Washington, DC.  We help small business owners organize their affairs to protect their investments and provide for their loved ones.  www.wilsonlf.com

How to Avoid Family Conflict When Making an Estate Plan

Unfortunately, money has a habit of bringing out the worst in people, even in the best of families.  One of the most important reasons to get your estate plan handled is to keep your family out of conflict.  And, yet, without the right counsel, your estate plan could actually cause conflict! 

Here’s what to do to make sure that’s not the case for your family:

• Communicate Your Plans Ahead of Time.  In our office, we recommend inviting adult children into the planning process and let them know ahead of time why you have made the decisions you have made.  This can be a difficult conversation and one we are extremely skilled at handling.  We don’t recommend doing it without the guidance of trusted counsel.

• Do Not Put One Sibling In Charge of Another Sibling’s Inheritance.  Unless agreed to ahead of time by both siblings, putting one sibling in charge of another will almost always lead to resentment and disagreement.  You can avoid this with strong communication and agreement ahead of time. Or you can appoint someone else to care for your child’s inheritance. We can help you think that through, so call if a child in your family will need inheritance protection. 

• Transfer Some Now Instead of All Later.  Consider how you can begin to transfer assets to your children during your lifetime when you can influence how they use those assets and you can pass on your values right along with them, instead of waiting until you are gone to pass on everything you’ve worked so hard for.

• Make Changes When Necessary.  Estate planning is an ongoing process, and when changes occur in your life – even if it’s the divorce of a child or a new grandchild – your plan needs to change as well.

• Pass On More Than Just Your Money.  Most estate plans focus only on your tangible assets, but your most valuable assets are your values, insights, stories and experience. We have a unique process in our office for passing on these assets that are most often lost when someone dies. And, honestly, they are what will keep your family focused on what really matters after you are gone.

• Choose the right advisor.  Developing a strong working relationship with your Wilson, lf In-House Family Counsel will allow you the freedom to frankly discuss your family dynamics, plan accordingly and keep the family involved every step of the way.  

If you would like to create or update your estate plan, call (978) 296-4140 or email, info@wilsonlf.com, Wilson, lf today to schedule a time for us to sit down and talk. We normally charge $750 for a Family Plan Session, but because this planning is so important, we’ve made space for the next two people who mention this article to have a complete planning session at no charge.

Wilson, lf is a boutique family-focused law firm located in Andover, Massachusetts and Washington, DC.  We specialize in estate planning, helping parents organize their affairs, in style, to protect their investments and provide for their loved ones.  We meet many of our clients in their homes across Massachusetts and in DC for utmost convenience. www.wilsonlf.com

The Family Post Blog

Welcome to The Family Post, a blog by Wilson, lf; a boutique family-focused law firm specializing in estate and small business planning.  We help parents and small business owners organize their affairs, in style, to protect their investments and provide for their loved ones.  We are located in Andover, Massachusetts and Washington, DC.  Please feel free to call us at (978) 296-4140, email info@wilsonlf.com, or visit our website www.wilsonlf.com.  We look forward to meeting you!