Can a life insurance trust help solidify your estate plan?

On Behalf of | Sep 15, 2020 | Firm News

Many people purchase life insurance policies so that they can help to provide for their family members even after they’re gone. While this is noble, and usually a sound financial decision, it’s imperative that you think carefully about how the insurance policy funds will be handled when you’re gone.

One option is to set up a life insurance trust. This has several benefits that you and your loved ones might appreciate. It’s imperative that you understand what this type of trust can do, as well as a few specifics about it.

Irrevocable trust

The life insurance trust is irrevocable, so you can’t change the terms or access the life insurance policy once the trust is funded. This provides many of the benefits that you and your loved ones will reap from the trust.

  • The trust is safe from creditor claims, so you know your loved ones will get the funds from the life insurance policy.
  • The contents of the trust don’t count toward the value of the estate, which may help with estate taxes in the period after your death.
  • You can set the conditions for the distribution of the life insurance after your death, which gives you more control than you have if you just name a beneficiary on the policy.

Time limits

A life insurance trust must be funded with the policy at least three years prior to the insured individual passing away. This means that you can’t waste time if you want to utilize this as part of your estate plan. There are sometimes workarounds that would negate that three-year requirement, so you can explore this option if you think that it might be necessary. For example, a person’s spouse can be named as the owner of the policy and then put it into a trust.

The life insurance trust is only one aspect of a comprehensive estate plan. Your attorney can help you to get everything together so you know that your loved ones know your wishes when you pass away. At a minimum, most adults need to have a will, powers of attorney and a letter of instruction to relay those wishes.

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