February 9th, 2010 
admin Can you direct a beneficiary to spend life insurance proceeds a specific way?
In the event that someone dies, can their life insurance proceeds be directed a specific way if they leave a note of such wish? If not, what must be done to direct the proceeds of a life insurance settlement so that specific things be done. For example: paying a bill or buying a house for the beneficiary.
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The beneficiary of the policy should be a testamentary trust in favor of the person who you want to benefit. The death benefit will go into the trust, which will be administered for the benefit of the beneficiary according to the terms of the trust.A lawyer can help you to do this. It is quite common. This is not a "do it yourself" project, or one for those non-lawyer trust mills. You will need to name a trustee–this can be someone you trust whom you expect to outlive you, or the trust department of a bank. A successor trustee should also be named, just in case something unexpected happens to the original trustee. The trustee's job is to make sure your instructions are followed to the letter.
The Professor is 100% right. Don't listen to Dana. If you make the estate the beneficiary of the trust, the dollars will be forced through probate and you will miss one of the best features of a life insurance policy. Bad idea!!!
You can probably use the life insurance to fund a trust that can restrict the use of the money. You need a lawyer to help you with this. Don't try it on your own. Laws on this vary from state to state.
If the policy directs the proceeds be paid to an individual beneficiary, then that beneficiary gets the money and can do whatever they want with it. However, you could instead name your estate the beneficiary of the policy, and then you could direct in your will what is to be done with the proceeds.
When they do there will they can put it in writing what they want done with the life insurance money.