I’ve set up my trust. Now what do I do with my life insurance?
I’m Sarah Siedentopf, I’m an estate planning and probate attorney in Atlanta, Georgia. And this is a question I get a lot.
Now that I’ve got my trust set up, and for this question, we’re gonna say it’s a revocable grantor trust that you are the beneficiary of during your lifetime, and then your children, friends, favorite charity, you know? Whoever you’ve chosen is the beneficiary after your passing.
So now that you’ve set up this trust, you probably already had life insurance in place, or maybe you, you know, are just getting some while you’re thinking about it, what do you do with it in regard to your trust? And this is very much up to you, situation dependent.
If you have minor children, we want to make the trust a beneficiary of your life insurance, because we do not want if you’ve gone to all the trouble of creating a trust and trustees, and doing all this estate planning, we do not want minor children to accidentally inherit outright, have to go to court to get a conservator, all of that stuff. This is, the planning that you’re doing is to avoid this. So we don’t wanna miss that beneficiary designation.
On the other hand, if you say, “I don’t need the trust to manage it, I don’t need the trustee to be over, it’s totally fine if my kids, or you know, whoever I’m choosing gets it right away it’s perfectly fine to have them as the beneficiary. So a most common suggestion that I have for people is, you know, often spouse is your first choice beneficiary, stays your first choice beneficiary. You say, if you know my spouse outlives me, I want them to get the money, and decide what to do with it. And then the trust being the second line beneficiary.
But again, in situations where you have older children, responsible people, it’s completely fine as long as it works with the rest of your planning to have it be still, you know, spouse and then kids. It doesn’t have to be connected to the trust if that doesn’t forward your goals because life insurance automatically passes to whoever’s in the beneficiary designation category.
So really the only huge mistake you can make is not having someone named, because if we run out of, you know either we never filled out the paperwork, or everyone has passed away, then it’s going to your estate, in which case it’s going through probate, and you set up a trust, you didn’t want this. So accidentally having it go to your estate, or accidentally having it go to minor children are, you know, the two biggest issues.
Other than that, as long as you’ve thought it through, and you know, have a plan, you’re usually good to go.
Commonly Asked Questions About Life Insurance in Trusts:
Is it good to put life insurance in a trust?
Putting life insurance in a trust can offer several benefits, including privacy, control over distributions, and potential estate tax savings. It can also ensure that insurance proceeds are used according to your wishes and provide protection against creditors.
What is a major problem with naming a trust as the beneficiary of a life insurance policy?
A major problem with naming a trust as the beneficiary of a life insurance policy is that it can lead to unintended tax consequences or complications if not structured correctly. Improperly drafted trusts may fail to provide desired benefits, such as asset protection or tax savings.
What is the role of trust in life insurance?
The role of a trust in life insurance is to serve as the beneficiary of the policy, providing control over how the proceeds are distributed. Trusts can also offer benefits such as asset protection, estate tax minimization, and ensuring the proceeds are used for intended purposes, such as providing for dependents or funding specific goals.
How to keep money in the family with an inheritance trust?
An inheritance trust can help keep money in the family by providing control over distributions, protecting assets from creditors, ensuring funds are used responsibly, and potentially minimizing estate taxes. By establishing specific terms and conditions, such as staggered distributions or incentives for beneficiaries, you can preserve wealth for future generations. Consulting with an estate planning attorney can help tailor the trust to your family’s needs and goals.
If you’ve got more questions, wanna talk to me about your specific situation I would love to hear from you. Also, please like and subscribe. Thank you.
