Say that my current debts outweigh my assets, and I don’t want to make anyone else bear the responsibility of discharging those debts. I take out a rather large life insurance policy that should cover all debts, pay for my funeral, and leave something nice to the beneficiary of my choice.
How can I make sure that my beneficiary actually takes care of my post-mortem expenses as I wished, rather than taking all the money and running? Can I place some sort of stipulation on the payout of the insurance policy, or do I need to rely on the goodwill of my beneficiary?
The beneficiary of a life insurance policy can do as he/she pleases.
No other person has a legal responsibility to pay those debts. If, for example, you owe $5000 but leave a $25000 policy to your girlfriend, your debtors are out of luck. Then again, your heirs are also out of luck (except for your girlfriend).
To insure that your debts are paid, make your estate the beneficiary of the policy. The executor of your estate has the obligation to pay your debts before distributing ANY property to your heirs.
Or…Create a trust fund and have the trust fund be the beneficiary of the policy. You can direct the trust fund to pay your debts and then pay your heirs.