When a will and a life insurance policy give different instructions regarding beneficiaries, it is generally the life insurance policy that takes precedence and will be followed.
For example, say that a person purchases a life insurance policy when they have two children, and they name them both as equal beneficiaries. The life insurance company is instructed to give them each 50% of the payout.
But in the years after they buy the policy, that person has a third child. In their will, they stipulate that all three children should split the policy equally. In a case like that, the life insurance company is still going to pay the two initial beneficiaries as instructed and would not be legally required to pay the third beneficiary.
How can you avoid these issues?
Differing instructions like this can lead to significant disputes between beneficiaries, and the best way to avoid them is simply to ensure that you always update your estate planning documentation. Any time that life changes significantly—such as when another child is born—update your will and your life insurance policy to make sure they match and include any new beneficiaries.
Additionally, you can set up other means of transferring the assets. One example would be to instruct the life insurance policy to pay out into a trust. The trust can then distribute the money between any beneficiaries that you choose, allowing for a smoother transfer of assets.
At the end of the day, it is important to make sure that all parts of your estate plan work together correctly, so it is very important to pay attention to the legal details when drafting a will, establishing a trust and taking other such steps.
