I’m Young and Healthy. Should I Make Life Insurance a Part of My Estate Plan?

I was speaking recently with the daughter of a friend of our family. The wife, 27, was pregnant with her first child. She and her husband, 30, were each in the process of creating an estate plan. They were also both shopping for life insurance.

The husband already had a small life insurance policy with his employer but recognized that once he became a parent, it wouldn’t be enough to care for his wife and child if he died. The wife was self-employed and didn’t have any life insurance in place yet.

He and his wife had also heard how purchasing life insurance when you are young enables you to get lower rates, which creep up as you get older. Not to mention, if you are in declining health, have a chronic condition, or have a life-threatening illness, you may not qualify for life insurance at all or have to pay exorbitant premiums for it. The couple recognized the risk they were taking by continuing to wait and had begun looking at different life insurance options with various companies.

The couple was also looking to create wills, medical and financial powers of attorney, and advance directives should either of them become incapacitated. They were also unsure how their life insurance policies would fit into their estate planning, given that life insurance proceeds pass outside a will and are not subject to probate. Confused by Washington State’s complex estate planning, they felt they should consult with an attorney.

Although young and healthy, the couple was doing everything right for themselves and their growing family. Unfortunately for them, a nosy relative (don’t we all have one??), who didn’t have life insurance and an estate plan for herself or her husband, decided to weigh in on the conversation, mocking the young couple for being “Nervous Nellies.” She said they should be investing in the stock market instead of paying for life insurance and an estate planning lawyer. I strongly disagreed. Here is why.

Invest in life insurance and an estate plan while you are young.

While I am all for building a nest egg early on in life, not investing in an estate plan when you are young is an even bigger gamble than buying stocks in a volatile market. There are real reasons for millennials and members of Gen Z to create an estate plan.

Among the reasons to form an estate plan early in life is so you can appoint a trustworthy individual to make health care decisions on your behalf should you become incapacitated. An estate plan is also important for protecting your finances, digital assets, and pets if you die. Yet another reason to create an estate plan while young is to protect the life insurance payouts you intend to go to specific beneficiaries. What you don’t want your loved ones to receive are any surprises.

What happens to life insurance proceeds not included in an estate plan?

People don’t often realize life insurance proceeds may pass to beneficiaries outside a will and are not subject to probate. The direct beneficiaries listed on a life insurance policy, therefore, take precedence over the beneficiaries named in a will. If all of your affairs are in order, meaning the beneficiaries of your will and those named on your life insurance policy line up, then your loved ones will be protected as you intend after you die.

However, you probably don’t think about your estate planning often if you are like most people. A regularly scheduled legal checkup can be helpful in that regard to ensure all of your beneficiary designations are in order and account for significant life changes, such as the birth of a child. Otherwise, your wishes may not be carried out as you like once you have passed.

Going back to the couple I mentioned above, before the husband married his wife, he named his brother as the beneficiary of the life insurance policy he had from his job. Why is this detail of consequence? Even if he created a will leaving all of his assets to his bride, if he failed to change the beneficiary on his life insurance policy from work, all proceeds would automatically pass to his brother regardless. With a new baby on the way, the husband most likely would want those proceeds to pass to his wife so she could use them to support herself and their child in his absence.

As for the new life insurance policies the couple had begun searching for? Without their individual life insurance policies included in their respective estate plans, should they die simultaneously after their child is born, another scenario could occur, which they presumably wouldn’t want.

In particular, if the couple died together, and they had named their child as the contingent beneficiary on the policy, the life insurance proceeds might not be easily and flexibly managed for the child by the guardian selected by the parents, if the child is a minor. Without a trust in place (whether a testamentary trust as part of a will or a revocable trust, operating as a will substitute) where the life insurance company could transfer the proceeds on behalf of the child, the life insurance company might have to transfer the proceeds to a court-appointed guardian who would hold the funds in a UTMA account until the child reaches the age of majority.

Such a scenario could create a problem for the child’s guardian, who might need to access those funds for the child’s support. It would also necessitate another level of bureaucracy (think fees!) that you can easily avoid with proper estate planning. Accounting for what will happen to life insurance proceeds in an estate plan is, you can see, critical to making sure your beneficiaries receive what you intend them to and when.

How can I find a Seattle estate planning lawyer?

There is a lot to keep track of when it comes to estate planning in Washington State. Situations can likewise come up which you might not have thought of, so you should have protections in place in the event they do. An experienced Seattle estate planning lawyer can anticipate such situations and safeguard against them so you don’t have to worry about the “what ifs” should you die prematurely.

The purpose of having life insurance is to provide you and your loved ones peace of mind while you are living and security for them when you are not. Call us to start your estate planning today.

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