Obtaining life insurance to protect your family in the event of your untimely demise is clearly the responsible thing to do…Right??
Well, maybe not…depending on how you look at it. Consider the following hypothetical:
- You are married and the father of two young children. As the main breadwinner of the family, you purchase a $500,000 life insurance policy naming your wife as the beneficiary and your children as secondary or contingent beneficiaries. You have peace of mind knowing you have responsibly given your family the opportunity to succeed even if you aren’t there.
- Move forward a few years. An unfortunate accident takes the life of you and your wife. Fortunately, your children will not grow up destitute. In fact, each has about $250,000 coming. Their lives are set…Right??Not necessarily.
- What happens when your children turn 18 years old and are suddenly handed a significant amount of money? Hopefully they have been taught how to properly invest, avoid impulse purchases, and prepare for the future. Unfortunately, Arizona schools have not adequately addressed the importance of teaching sound financial fundamentals to students. And, how many parents actually immerse their children in family budgeting and financial decisions? Probably not many.
- Unfortunately, this financial windfall may leave your children with no incentive to go to college or develop a skill for a productive trade. Even more disconcerting, statistics indicate that the average inheritance is wasted within a period of 18 months. Your children may eventually become adults with no education, no job skills, and no money.
Warren Buffet, multi-billionaire, has stated that he intends to leave his beneficiaries just enough so that they believe they can accomplish anything, but not so much that they believe they can do nothing.
The solution is simple. Have an appropriate estate plan drafted with testamentary provisions that place the substantial inheritance from the life insurance policy in a trust for your children. appoint an experienced trustee to manage the assets of the trust, one who will provide wisdom and the appropriate discretion to provide for the beneficiaries health, education, maintenance, and support needs. The testamentary provisions can be as simple or complex as you desire. After all, who knows your children better than you and your wife? And, who knows how to help your children become successful and happy more than you and your wife? Working with an estate planning attorney allows parents to make their will known long after they are gone.
So, obtaining life insurance to protect your family is the responsible thing to do… particularly when combined with a well thought out and drafted estate plan.