MR. WATSON: Here's how it works. When you die, we add up the value of your land, jewelry, car, your gold necklace, your diamonds, Rolex, house, everything you own or control, including any life insurance you own. And if it exceeds a certain amount, everything above that will be subjected to an estate or death tax. Now, the primary drawback to leaving proceeds to an estate is that it can increase the size of the estate for estate tax purposes and creditors have first crack at it.
A note: Estates go through probate. Probate means "to prove" who gets what. A famous artist might have several "wills". The probate process will "prove" which one is valid. It can take a long time and can be expensive. Therefore, if life insurance proceeds are paid into the estate, they are no longer considered life insurance proceeds and will go through probate. Creditors can then go after whatever is in the estate, including the insurance money.
MR. WATSON: Now, life insurance policies do not go through probate. We don't need to prove who gets it. The beneficiary gets it. As a matter of fact, courts never overturn beneficiary designations. Never heard of it. Trusts, they've overturned, but not life insurance beneficiary designations.
MR. WATSON: Life insurance policies are creditor-proof. Your creditors can't come after it, including the cash values of your life insurance. Isn't that something? Guys, those are two great selling tools right there, educational tools.
MR. WATSON: Next, can I leave my proceeds to a charity? Yes, I can do that.
Minors ***
MR. WATSON: Next, minors as beneficiary. You don't want to name a minor as beneficiary. You may want to name a trust instead.
WOMAN: Instead of the juvenile beneficiary, you put it into a trust so that the mama, if you are divorced, can't get the boy's money?
MR. WATSON: Right. Good reason. Minors may lack judgment or expertise as to the investment of the money. If a minor is named, the insurance company, instead of paying to a minor, may
- make limited payments to a guardian
- hold the money until the minor reaches majority age
- place the proceeds in trust