Minnesota Trust Attorney Answers: Should You Leave a Life Insurance Policy Outright to a Spouse?

Jan 8, 2024 | Trusts

Naming a legal beneficiary is necessary for life insurance, annuities, qualified retirement plans, individual retirement accounts, and some bank accounts. Ideally, these assets will be paid directly to whoever you have selected as your beneficiary in the event you passed away.  The assets won’t have to go through probate; at least, that is the way it is supposed to work.  Unfortunately, Minnesota trust attorneys have seen relatively commonplace situations with beneficiary accounts turn into huge problems for families.

When it comes to beneficiary designations, most people who are married will choose their spouse to inherit such accounts if they pass away.  While it is not necessary to choose a spouse as a beneficiary on such policies (unlike many other assets that automatically pass to a spouse after death), most desire that the proceeds of their accounts go toward providing for any kids of the marriage and easing any additional economic hardships that the death may bring to the family.

However, a common observation is that spouses often need help and guidance when their marriage partners die. Grief, confusion, and lethargy all take their toll during the period of bereavement. By leaving property outright to a surviving spouse through a beneficiary designation, you may have no opportunity to provide him or her with clear direction in managing the money. 

In estate planning, more often than not, an outright distribution also tends to create more problems. For example, the surviving spouse who inherits money may now become an easy target for children, relatives, or unscrupulous people who want something.  In many cases, leaving property outright makes it easier for those predators to feast. 


Another concern is that if the surviving spouse remarries, there is no assurance that any property he or she received will ever pass to the deceased spouse’s children. Or if the surviving spouse has creditor problems, any property left outright to that spouse is fair game for creditors. 

Finally, if your spouse dies before you, or you both die at the same time, any accounts listing the spouse as a beneficiary will have to go through probate, and the court will determine who will receive them. If your spouse is disabled when you die, the court could take control of the funds.

A safer solution may be to create a family trust and name the trust as the beneficiary on any life insurance policies, retirement plans or bank accounts that require such designations.  You can then name your spouse as trustee to ensure that he or she will be able to access and control what is being left behind, while also leaving clear instructions for what should happen to any assets left in the trust in the event your spouse also passes away, gets remarried, or simply needs to bring in someone else to help manage the family’s finances. 

Setting up a trust to hold the proceeds of accounts with beneficiary designations is not a strategy that’s right for everyone, but it may be best for your family if you have any of the concerns listed above. It’s also an important strategy to consider if you are planning to leave the proceeds of any policies to a minor child or child with special needs. If you’d like to learn more about setting up a trust and creating legal plans to ensure that life would be as easy as possible for your loved ones in the event of your death, please feel free to contact our Minnesota trust attorney at (763) 244-2949 to set up a consultation.