Virginia residents who are going through a divorce should not overlook how their property settlements might affect their estate plans. Careful drafting of property settlement agreements involving life insurance is important to avoid potential problems.
Life insurance in property settlement agreements
Many property settlement agreements in divorce cases include provisions requiring each spouse to maintain life insurance to benefit their children in case one of them dies while the children are young. If the children are minors when a parent dies, however, the other spouse might receive the proceeds to use for the benefit of the children. Without permitted uses being listed in the property settlement agreement, little can be done to prevent the recipient spouse from spending the money as he or she sees fit. The children’s surviving parent might also have to go through the probate process to have someone oversee the funds. One way to avoid these issues might be to set up a revocable trust with the children named as beneficiaries.
Life insurance trusts
People who will have to carry life insurance to replace the loss of child support in the event that they pass away before their child support obligations end might establish life insurance trusts through estate planning to hold the proceeds for the benefit of their children. A trustee can be named who will manage the trust proceeds for the benefit of the children. The grantor can designate when the money will be distributed to the children once they reach the age of majority.
Establishing life insurance trusts to hold life insurance proceeds for the benefit of the children during a divorce case might help to prevent unintended consequences from happening if a parent dies. This can ensure that the funds are used for the children’s upbringing and that they will have a good start as they enter adulthood.