Estate planning and divorce: One step to protect your children
It is rare that anything in law can be done with one step. Thankfully, when it comes to safeguarding your children’s financial future after a divorce, one relatively simple step can make a big difference. In fact, it isn’t even that painful – and as an added bonus, it is also an important step for estate planning.
The step: get a life insurance policy.
How can a life insurance policy help?
A life insurance policy can help provide financial support. Some property settlement agreements, also referred to as marital settlement agreements, require that the parents maintain life insurance policies. If triggered, these policies then provide a payout to help in raising children.
How can I make sure the proceeds go towards my children?
The policy payout is generally controlled by the beneficiary designation. It is important that these designations are reviewed on a regular basis to ensure an unintended beneficiary does not receive the payout. This is particularly true after a divorce.
Generally, people in these situations choose one of three options: an ex, the children, or a trustee.
There is generally little oversight if the benefits are paid out directly to the ex. If the distribution is to underage children, the court may designate a guardian to oversee the funds until the children reach 18 years of age. A greater deal of control is available if the third option, a trustee, is used.
A trustee is the person that manages a trust. A trust can be set up to guide the use of funds under many circumstances. Depending on the language used to create this legal tool, it can also result in tax savings.
How are life insurance policies part of estate planning?
Proper estate plans cover all of your assets. In addition to covering the distribution of savings accounts, retirement accounts, property and personal possessions it should also include a discussion about life insurance.
Determining the best option for your situation can be difficult. As a result, it is often wise to discuss your options with an experienced estate planning attorney.