Estate planning allows people to establish a very specific kind of legacy. They work with a lawyer to draft documents that allow them to allocate their resources to specific beneficiaries after their passing. What other people inherit from the estate may influence how they remember the testator after they pass.
There are a variety of documents that people can use to provide guidance and support for their loved ones after their passing. In addition to establishing instructions regarding personal property and the support of loved ones, testators may also need to think about how to expand the long-term influence they have on others or diminish the economic strain caused by funeral expenses and personal debts.
Life insurance can be an important matter to consider when establishing an estate plan.
How life insurance helps
Life insurance pays out when covered people die. Depending on the terms of the policy, the coverage available can cover end-of-life care and funeral expenses. It may allow surviving family members to pay off mortgages, student loans and other debts.
Parents and others with dependent family members often carry robust life insurance policies to help ensure that their loved ones have adequate financial support after their passing. People can use life insurance to fund a trust. Doing so can be a way to provide years of structured support to beneficiaries. People may also leave instructions in their estate planning documents to use life insurance to cover certain expenses.
Estate plans don’t control insurance payouts
Some of the most common mistakes people make related to life insurance involve delaying the decision to purchase a policy or carrying less than the family requires. Failing to update beneficiary designations is also somewhat common.
Testators need to understand that they cannot use a will to designate an insurance beneficiary. Only the paperwork filed with the insurance company can change who receives the proceeds from the policy. Policyholders may need to file updated beneficiary designations when their circumstances change.
Reviewing family circumstances, financial obligations and other personal details with a skilled legal team can help people integrate their life insurance into a comprehensive estate plan or choose how much coverage to carry. Life insurance can have a profound impact on the long-term legacy a testator leaves behind.
