The Life Insurance TrustFollowing Through on Your Swing
In golf and tennis, it is important to keep your eye on the ball so you make good contact. However, it is equally important to follow through so the ball goes where you want it to go.
In life insurance planning, like golf and tennis, many people are good at planning what their needs are but neglect following through by thinking about what will happen to their life insurance proceeds when they die. Sometimes those proceeds are mismanaged and go into the rough or off the court. A life insurance trust may help.
A trust may come in handy if your spouse and/or other beneficiaries are not accustomed to managing large sums of money. By establishing a trust, you are just following through on the contingency plans that prompted you to purchase life insurance in the first place.
As the creator of the trust, you choose the trustee for the trust that becomes the owner and beneficiary of the insurance policy(ies) on your life. When you die, your trustee will collect the insurance proceeds, invest them prudently, and make distributions of income and principal to your beneficiaries according to your instructions. The burden of financial management is thus taken from your beneficiaries.
Here's what you can do with a life insurance trust:
- Set up an investment plan for the insurance proceeds and know that the plan will be carried out by experienced professionals;
Enable your trustee to make special distributions to one or more beneficiaries in case of an emergency;
Instruct your trustee when and to whom distributions should be made;
Avoid the complexities of court-appointed guardianship if you name minor children as trust beneficiaries; and
Unify your estate plan by having your estate assets "poured over" into the life insurance trust so that all of your assets can be administered by a single trustee.
A life insurance trust can also help alleviate estate taxes. Recent cases have clarified the federal estate-tax liability of insurance proceeds. The proceeds will not be subject to estate tax if the trust is irrevocable and if you do not hold any incidents of ownership (generally, the economic benefits of a policy) in the insurance at the time of your death and if you do not transfer any of the incidents of ownership within three years of your death. In an irrevocable life insurance trust, the trust purchases and owns the policy for you (your connection to the transaction is limited to taking the physical and transferring funds to the trust). So, through your life insurance trust, you can make certain that your insurance proceeds will remain free of estate taxes.
Your individual family circumstances and estate plans will determine whether or not a life insurance trust is appropriate for you. Our #1 Insurance Quotes Life Disability Insurance Representatives, working in conjunction with your other professional advisors, can be instrumental in helping you plan for the best financial future for your family. So, be sure to follow through with your estate planning and contact us if you need assistance.