Monday, May 20, 2024

Life insurance should enhance, not thwart your estate plan

by ROBERT J. GREEN/Kootenai Law Group
| May 15, 2024 1:00 AM

Life insurance is a valuable tool to protect your family, and potentially your business interests after your death. Your estate plan is the collection of legal documents that include directions about what should happen to your assets upon your death. Your estate plan could include either a Last Will and Testament or a maybe a Living Trust. One of the most common problems I discover when I review existing planning with clients or potential clients is the failure to coordinate the outcome of a will or trust and the outcome of life insurance proceeds. Let’s examine some of the potential problems this can create so that we can avoid them.

First, I regularly find that clients have all of their children named as the beneficiaries of their estate through a will or trust if their spouse does not outlive them, but their life insurance policy does not list their children as back-up beneficiaries. Or, perhaps the policy only lists one of their several children as beneficiary. This could be done purposely (perhaps one child is meant to receive all of the life insurance proceeds but will not receive as much as the other children from the other assets of the estate). More often, however, the life insurance beneficiaries have been named without any thought or understanding about the bigger picture of how the rest of the estate will be divided. This can lead to one or more children receiving a much larger share of inheritance than the others (which is perfectly fine if that is your intent, but you don’t want this to happen just because of poor planning). 

A nightmare scenario can occur in a blended family/second marriage situation where life insurance beneficiaries were never updated after a divorce, prior spouse’s death, or other life event changes. Whether or not an ex-spouse or ex-stepchildren can collect a life insurance payout after a divorce can be a very complicated legal question that will turn on multiple factors. These factors can include the terms of the policy, what state the policy was issued from, what state the couple lived in, what state the decedent died in, and the terms of the divorce decree. Figuring all of this out and fighting about it in probate court can easily cost thousands of dollars. That’s great for the attorneys involved, and bad for everyone else.

Another common problem I see specifically impacts clients who have living trusts set up in order to avoid the need for an estate to go through probate court after death. This issue occurs when the spouses have named one another as the primary beneficiary on a life insurance policy but have not listed anyone as the contingent or “back-up” beneficiary on the policy. When the second death occurs between the spouses (or if the spouses die simultaneously) there is no back-up beneficiary listed to claim the proceeds from the insurance company. In most policies this will result in the insurance company paying the proceeds of the policy to the “estate of the decedent.” So, what is so bad about that? Well, in this situation, the “estate of the decedent” means the deceased policy owner’s Probate Estate, NOT their trust. This means even though the deceased couple had gone through the cost and effort of setting up a trust to avoid having their estate go through probate, we will still have to go through a probate to deal with the life insurance proceeds. 

A final problem I see too often occurs when a will or trust sets certain rules or limitations on the distribution of inheritance for a beneficiary requiring the beneficiary to reach a specific age, or accomplish a certain life goal (usually education, or a perhaps period of time sober, etc.) before the beneficiary can directly receive their inheritance. The problem here occurs when a life insurance policy names that same person as a beneficiary of the life insurance proceeds. Those proceeds will be paid directly to that beneficiary without application of any of the prerequisite rules the policy owner established in their will or trust (because life insurance proceeds are not subject to the terms of a will or a trust). 

The good news is that all of these problems are avoidable with a little bit of good planning. A good estate planning attorney will do more for you than simply type up a few legal documents. Planning involves forward thinking, an understanding of the law, and a good view of the big picture. That’s what I offer when I help a client plan their estate. You should require nothing less. 

My law firm is currently offering free electronic, telephonic or in-person consultations concerning creating or reviewing estate planning documents and coordinating your planning with life insurance and retirement accounts.

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Robert J. Green is an Elder Law, Trust, Estate, Probate, & Guardianship Attorney and the owner of Kootenai Law Group, PLLC in Coeur d’Alene. If you have questions about estate planning, probates, wills, trusts, powers of attorney, guardianships, Medicaid planning, or VA Benefit planning, contact Robert at 208-765-6555,, or visit

This has been presented as general information and not as legal advice. Do not engage in legal decision-making without the advice of a competent attorney after discussion of your specific circumstances.