Yes, the beneficiary of life insurance can be a trust. Sometimes policy owners do not feel that the person(s) they want to receive the funds are capable of handling that money all at once. By leaving the life insurance proceeds to a trust, the death benefit can be allocated according to the policy owner's wishes. However, leaving life insurance to a trust may open it up to estate taxes, in some states. Consult with a tax attorney to determine the best course of action.
President, The Firm of Steven H. Kobrin, LUTCF, 6-05 Saddle River Rd #103, Fair Lawn, NJ 07410
Sure thing. People do it all the time.
Why do they use a trust? You certainly want to talk to an estate planning attorney about that. Get legal expert advice from a legal expert.
But, I can tell you a few things as someone with many clients who have used a trust in their life insurance planning.
It’s a great way to keep large amounts of money out of your estate, and therefore out of the sights of the taxman. Estate tax bills can be a huge; fortunately, legitimate legal tools such as trusts are available to minimize the bite.
A number of trusts are available for use. Which one would be best, given your circumstances? Ask your attorney. (And by the way: make sure it’s an attorney who specializes in estate planning. A lot of money is on the line here, and you want to make sure you get the best advice possible. Your real estate or commercial lawyer may be a good guy, but he doesn’t have the specialized knowledge that an estate planning specialist has.)
Remember that when you use a trust, you lose control. The trustee runs things. That’s why your choice of trustee is a key management decision. Give this a lot of thought. Ask your attorney about the legal and fiduciary responsibilities of a trustee. He or she can be liable if the policy inside the trust does not perform as outlined.
This brings up the all-important function of a life insurance policy audit. On a regular basis, that policy should be reviewed to make sure it is meeting expectations. The cost, the benefit, and the guarantee period on the premium should all be verified.
For example: what if a universal life product was used, but due to a price increase, the coverage will terminate 10 years earlier than scheduled? Not a good situation. You don’t want to be in a situation when the policy will have failed right when a claim is supposed to be filed.
This means that your broker, your trustee, and your attorney need to buddy-up and work together to make sure your insurance trust and the policy it holds are doing their job.
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Why do they use a trust? You certainly want to talk to an estate planning attorney about that. Get legal expert advice from a legal expert.
But, I can tell you a few things as someone with many clients who have used a trust in their life insurance planning.
It’s a great way to keep large amounts of money out of your estate, and therefore out of the sights of the taxman. Estate tax bills can be a huge; fortunately, legitimate legal tools such as trusts are available to minimize the bite.
A number of trusts are available for use. Which one would be best, given your circumstances? Ask your attorney. (And by the way: make sure it’s an attorney who specializes in estate planning. A lot of money is on the line here, and you want to make sure you get the best advice possible. Your real estate or commercial lawyer may be a good guy, but he doesn’t have the specialized knowledge that an estate planning specialist has.)
Remember that when you use a trust, you lose control. The trustee runs things. That’s why your choice of trustee is a key management decision. Give this a lot of thought. Ask your attorney about the legal and fiduciary responsibilities of a trustee. He or she can be liable if the policy inside the trust does not perform as outlined.
This brings up the all-important function of a life insurance policy audit. On a regular basis, that policy should be reviewed to make sure it is meeting expectations. The cost, the benefit, and the guarantee period on the premium should all be verified.
For example: what if a universal life product was used, but due to a price increase, the coverage will terminate 10 years earlier than scheduled? Not a good situation. You don’t want to be in a situation when the policy will have failed right when a claim is supposed to be filed.
This means that your broker, your trustee, and your attorney need to buddy-up and work together to make sure your insurance trust and the policy it holds are doing their job.