There are cases where estate planning beneficiaries and life insurance beneficiaries do not line up. This can get complicated during the probate process. It may not be entirely clear what the deceased individual actually wanted to happen.
For instance, say that someone reassessed their financial position after the birth of their firstborn child. That is when they decided to buy a life insurance policy, and that firstborn was named through the beneficiary designation.
But by the time that individual wrote an estate plan, they had already had three more children, and decades had gone by. In their will, they wrote that all four adult children should be equal beneficiaries and they should each get 25% of the life insurance payout. What happens when there is a conflict between the two sets of instructions?
The life insurance policy trumps the estate plan
Generally speaking, the life insurance beneficiary designation is viewed as more important than the estate plan. This is because the life insurance company administers the payout directly to the intended beneficiary, so it is not actually part of the deceased person’s estate.
This certainly can create conflicts. If the firstborn child decides to keep the entire balance of the payout, the other adult children may argue that it was clearly their parent’s wish that they all split that money. This is why it is so important to update beneficiary designations and estate planning documentation whenever new children are born.
When probate disputes arise or when there are complicated instructions, it is important for those involved to know exactly what legal steps they can take.
