Choosing among payout options

[orma32]

My father died recently and I'm helping my mother (beneficiary) fill out a life insurance claim form. Trying to figure out the best payment option.

1. payment into account in beneficiary's name held at life insurance co. Can transfer funds out at any time. No monthly or draft charges. Earns interest. The real benefit of this seems to be that my mother can name beneficiaries for this account. Upon death, the account balance goes to her named beneficiaries (not to her estate), and since these are life insurance proceeds, they should be tax-free to her beneficiaries. But if the estate is not large enough to be subject to estate tax, I guess this has no tax advantage over taking a lump sum and putting into similar yielding instrument, then passing onto heirs via named beneficiaries or via will?
2. lump sum
3. life income - monthly payments for life
4. life income with a certain period - payments continue for certain period even if beneficiary dies during the period.
5. fixed period - payment for fixed # of years with right to withdraw present value of unmade payments
6. fixed amount - fixed payments until benefit all paid out with right to withdraw unpaid balance.

For a situation where (a) the money isn't at risk of splurge spending, and (b) isn't needed as an income supplement to be spread out over mother's life, are there any tax benefits or other benefits or reasons to NOT simply take lump sum payment as a check?

 

[reana]

@orma32 Sounds to me like you should just take the lump sum. Life insurance passes to beneficiaries tax free so there's no concerns there.

 

[tabinek]

@orma32 Option 1 is a convenience if the plans for the money aren’t immediate or if the interest rate is better than a savings account (1% or better these days) then leaving it there is fine. Otherwise take option 2.

 

[krikkor]

@orma32 Option 3, life comes day by day. Setup the money for weekly/monthly payments. Depends on the person receiving money and their financial habits. Make sure to find out if they have debt or any other concerns that may jeopardize the money route. Security is needed for safety! And pay yourself first so you can invest in it now/later. Second person to pay needs to have specific guidelines to adhere too. Don’t know if I’m making sense since I’m quite sleepy, but point is. Money comes and goes. It’s memories that last forever. Invest now while you still have the chance! Nighty night!