Life insurance can be an excellent tool if you don't have a lot of money in your estate and you want to be able to provide for your loved ones. Term life insurance policies are not terribly expensive, and you can obtain a great deal of protection for a relatively small monthly payment. For example, if you don't have a lot of money saved, and you are concerned about providing for your family, you might entertain obtaining a life insurance policy that will provide for your family not only in the short-term but also in the long term. It's one of the easiest things you can do to infuse a whole bunch of cash into your estate upon your death so your family isn't struggling to make ends meet a few weeks after you pass away.
Raising children can be expensive. College costs and other issues can weigh heavily on the surviving spouse. When I do planning with younger couples who don't have a great deal of savings (even older couples who may not have a great deal of money set aside), I explain to them that life insurance is an excellent way to infuse a whole bunch of money into the estate. The younger you are the better because the premiums are usually less expensive. With every decade that passes, monthly premiums rise, so you want to act sooner than latter.
In most cases, I advise my clients to have their life insurance policies payable to their living trust. In other words, the trust is the beneficiary of the policy instead of naming a human being. When the money is payable to the trust, it can be protected for the surviving spouse and, in most case,s for the children if properly drafted. The living trust should have protective language preventing outright distributions to your children (or other beneficiaries). For example, $500,000 could be payable upon the death of a parent and that $500,000 could be made payable to their living trust. The money flowing to the trust can sit there and be managed for the benefit of the children. If there is a surviving spouse, he or she could also benefit from such a cash infusion.
The important thing is to obtain life insurance while you are young and relatively healthy. It might be a good idea to get a fixed premium over the course of 20 or 30 years. I don't sell life insurance, but I do understand that it is an important component when it comes to a estate planning. If you have more than enough in savings and investments, you may not need life insurance. However, as an income replacement, your family will certainly appreciate it. Also, by naming your living trust as the beneficiary of the life insurance proceeds, you can design a trust that can protect your children and other beneficiaries.
If you want to talk about your estate plan, please call our office and ask about a consultation. Call (661) 414-7100.
VIDEO TRANSCRIPT: Hello again, everybody. This is Robert Mansour, broadcasting from my office in Los Angeles, where one of my areas of practice is estate planning. One of the issues that comes up oftentimes is when people have life insurance, they don't know who to make it payable to. Usually, they make it payable to a spouse, which is fine. And then, after the spouse, they name their minor children. Now, I'm not a big fan of naming minor children, and here is the reason why.
First of all, the life insurance company is not going to write a check to a minor and then, at age 18, I certainly don't want my kids having full access to the life insurance money. For me, I have a million-dollar life insurance policy, so I don't want half a million dollars to go to one of my kids and the other half to another kid. Frankly, that's just going to open up a lot of doors and make a lot of problems for them.
They may be subject to the influence of others. They may not handle that money well. I would much rather the money be guarded for them and protected for them, which is why I have my life insurance policy made payable to my living trust. The reason for that is I want the money to be protected for the kids. I want the money to be sitting there growing for them, distributed to them at an appropriate times for appropriate reasons.
I don't want that money going directly to the children, because they'll either squander it, somebody else will take advantage of them, who knows what? I would much rather it be payable to the Mansour Family Trust, which is my living trust. So, if you have a living trust or if you're considering creating a living trust.
I strongly recommend you consider making your life insurance payable to your living trust. It might be the appropriate thing to do. Thank you very much for watching this video and we'll catch you next time.
Here is the transcript from the video:
Hello everyone. This is Robert Mansour. I'm an attorney in the Los Angeles area and we're going to spend a few minutes talking about five easy things you can do to protect your family today. This doesn't even require going to a lawyer. You can do these things on your own and we'll walk through five things that you can do to protect yourself and your family. If you want to learn more about my office you can go to my website which is right there on the screen, www.mansourlaw.com. My office is 661‑414‑7100. Let's begin.
If you have any assets that are in your name alone you want to make sure you get yourself a will. People say well what is a will? What is the legal significance of a will? A will is just basically a letter to the judge telling the judge where you want your assets to go after you pass away. So that's all it really is and also a will only goes into effect after you pass away. It's really of no legal significance and no legal use while you're still alive. You can name guardians for minor children as part of your will. If you want to get a free California will and you don't want to go to a lawyer and you don't want to get a more robust estate plan that might include a living trust etcetera, you can go to www.calbar.org. On the left-hand side search for the public forms and you will find a free California will available for you with instructions on how to fill it out and you can have it witnessed by two witnesses which is the requirement here currently in California and keep in mind though a will is not a panacea. A will is not going to solve all your problems and in fact a will is to some extent a limited document. But if you don't have one and you can get one for free, why not? Check it out at the California Bar Association. Let's go to Step 2.
Step 2, check the beneficiaries on your life insurance policies and tax deferred accounts. So remember I talked about a will. A will controls assets that are in your name alone. However there is a lot of things you might have like life insurance policies and tax deferred accounts like IRAs and 401Ks and 403Bs. Those things pass by way of a designated beneficiary. When you got those things you probably filled out a form called a beneficiary form. So it doesn't matter what your will says. Basically what matters is what that form says. So a lot of married couples for example will find that they have their spouse listed but when they review these beneficiary designations they find that they often forget to put somebody beyond the spouse. They don't put their children. They don't put their sisters or brothers or whoever they want the asset to go to. So in the event of a common accident, the husband and the wife pass away and now we're stuck because there are no other beneficiaries listed on the form. So not only do you want to check who your primary beneficiary is but you also want to check who your secondary beneficiaries are. Now, if you have minor children and in California that's people who are under the age of 18 are considered minors, you want to be very careful and you may not want to name them as the secondary or contingent beneficiaries. You may want to name a living trust as the beneficiary in the case of minor children. But if you want to learn more about that you can visit my website or give me a call. I'll be happy to explain that further. Also if you have beneficiaries that you might have a concern about how they would handle the money you may not want to name them directly. But at the very least check who you have and make sure that it's correct and make sure that you name individuals and don't put something like my estate shall be the beneficiary. That's inviting trouble right there.
Next is Step 3 here. We're going to get an advance health care directive. Get an advance health care directive. Now why is that important? An advance health care directive allows somebody to make health care decisions for you if you cannot. Not only that, they can be your advocate. They can advocate for you in the hospital setting or, you know, let's say for example the hospital staff is not paying attention to you or the nurses are not helping you or they're giving you the wrong medication or whatever the case may be, or you need to be relocated from one facility to another. Your agent under the healthcare directive can advocate for you and make those kinds of decisions. Also the health care agent can decide whether or not, you know, life support should be extended, whether or not, you know, a certain surgery that is being recommended should be done or not. People often think that their spouse is automatically entitled to do this. That is an incorrect assumption. One must be given the legal authority to act via an advance health care directive. Some states in the U.S. still call this thing a living will, but in California we call it an advance health care directive. You can get an entry level form from the California attorney general's office. Just look them up on the internet. Look up the California attorney general, type in the search box advance health care directive and you'll find a free form that is entry level but it's better than having nothing so go ahead and get that in place and empower whomever you want. Make sure you list a primary agent and also one or two secondary agents.
Next is Step 4. Examine how you hold title to your assets. Take a look at everything that you own and ask yourself how do I own that asset? Do you own it as a single individual? Do you own it jointly? Do you own it as joint tenancy, tenants in common? Do you own it in a living trust? Do you own it in your name alone? All of these things have legal ramifications. This is not just something to toy with. You really have to examine this and ask yourself is that really the way I want to hold title to my asset? So if you want to discuss that further you might find some good resources on my website or give me a call and I will explain to you the ramifications. One ramification that we could talk about is joint ownership. Joint ownership is when you own property jointly with other people and that's fine. There's nothing wrong with holding property jointly with other people but what happens is if one person passes away, the other person is now the owner of that property and if they add another person and then they pass away then that third person now owns the property. Basically this is one of the easiest ways for people to lose their assets in this country. Joint ownership is one of the leading causes of disinheritance, people losing their wealth to other people because they put others on title with them and the property and the asset mysteriously ends up in the wrong hands. So make sure you take a very close look at how you hold title to your assets.
Step No. 5, review your insurance policies. Now I don't sell insurance and I'm just telling you this because I have seen time and time again people getting burned because they did not have adequate insurance. Sometimes clients come to me and they say, well we don't have a lot of money and we're not sure if we should do an estate plan. We've got these little kids, etcetera. I say look, go get yourself a big life insurance policy. If you pass away a lot of money can be passed onto your children to help them with college, to help them with paying the mortgage, to help the kids with, I don't know, day care. You name it. They're going to need that money and so you want to make sure you have adequate life insurance. So talk to somebody who knows what they're talking about and get yourself some really good life insurance especially if your estate is going to need a lot of cash in order to deal with a catastrophic situation. Also you want to take a look at your auto insurance policies. Do you have enough insurance? A lot of people don't have enough insurance on their car insurance policies and they end up getting in horrific car accidents and there's not enough money there for the family. They generally rely on the responsible party, the person who caused the accident, but guess what? 25 percent of the time that person is either not going to have enough insurance or not have any insurance at all so you want to make sure that you have the adequate car insurance not only for liability but also for something called uninsured motorist and underinsured motorist. Make sure you check your life insurance policies and your auto insurance policies and your homeowners insurance because so many people have basically gone from great wealth to nothing because of a catastrophe and they didn't have the adequate insurance policies.
And that's been five easy things you can do to protect your family. My name again is Robert Mansour. Thank you for watching this short video. I hope you found it helpful and if you did please pass it along to others. Again these are five things that you can do on your own with a few phone calls, talk to a couple of professionals in your life, your insurance broker, if you have an attorney you want to talk to them to get more information that's fine. Or you can call my office and get more information as well. Thank you very much for watching.
Be careful when naming minors as beneficiaries of life insurance policies. Click here to see a quick 5 minute white-board discussion regarding naming minors as beneficiaries of your life insurance policy.
Should you name your children as beneficiaries of your life insurance policies? Probably not!
Many people don’t give too much thought when choosing someone to be the beneficiary of a life insurance policy. Most people name their spouse as their primary beneficiary. Then, when it comes to contingent beneficiaries, many people either don’t list anyone at all, or in some cases, they list their minor children as the beneficiaries. It all seems so simple and straight-forward.
One of the biggest mistakes you can make is naming a minor as beneficiary. At first, it seems like a great idea. After all, you want your kids to get the insurance money…don’t you? However, what you may not realize is that doing so can create legal and practical problems. For example, I have a $1 million life insurance policy. However, my son is 11 years old, and my daughter is 9 years old. If my wife and I pass away in a common accident, do you really think our life insurance company is going to write a check out to my kids? Even if the insurance company would write checks to minors, do I really want my kids getting $500,000 each at such a young age with no strings attached?
So what is going to happen? The life insurance company will typically offer two choices. First, the child can wait till he/she is 18 years of age (believe it or not, that is considered adulthood) and then get a check for the full amount. Getting large amounts of money at such young ages can easily lead to a squandering of those assets. Even if your child is “responsible,” he or she may be subjected to pressures from their peers. Think about it. Do you want your kids getting such large sums of money at such a young age? Second, they could pay the money to whoever is designated as the children’s guardian. Have you named a guardian for your kids yet? Even so, that is a court process that takes time and money, and their money will still be available to them once they turns 18 years old.
If you have minors as beneficiaries of your life insurance policies, complications are bound to arise. Usually, getting a life insurance policy is supposed to provide your surviving loved ones with financial security and peace of mind. However, if you don’t give much thought to the beneficiary designations, you may be creating more problems than you have solved.
To help solve this problem, a living trust can be set up to receive the life insurance proceeds. In other words, your living trust becomes the beneficiary of your life insurance policy. That way, no one has to go to court to get the life insurance money, and the proceeds can be paid out much quicker, thereby making the money available to the family without delay. The advantage is that YOU establish the trust, YOU select the trustees, and YOU outline the terms under which assets can be used and distributed from the trust. This solution often works in the best interests of the minor children and those of other dependents, such as a surviving spouse. Therefore, by doing so, you’ve obviated the need for court intervention and the money can be managed responsibly for our children.
A living trust is not a panacea but can be appropriate for many people. Work with your attorney to see if your family could benefit from establishing a trust as part of a broader estate plan.