A trust is an account for beneficiaries controlled by a trustee. Trusts are popular estate planning tools as they offer many advantages over traditional probate. The regular probate process can take months or even years. A petition must be filed with the court, notice must be given to beneficiaries, inventory must be taken, and debts must paid before property is finally transferred over the beneficiaries of the will. With a trust, all assets are placed in an account which the creator of the trust (the grantor) controls until their death, whereupon control of the trust is relinquished to the trustee. The trustee then has an obligation to use the assets for the benefit of the beneficiaries. There are many types of trusts used for different purposes- to avoid taxes, to hold money until an heir is older, to benefit charities, etc.. Here’s a look at a Life Insurance Trust.
What Is A Life Insurance Trust?
A life insurance trust is set up to be the beneficiary of a life insurance policy. The trust essentially acts as a person purchasing policies on the grantor of the trust. So, when the insured dies, instead of the life insurance money going directly to the beneficiary it goes to the trust. This seems like an indirect, roundabout way of doing things but it offers a major benefit- it can remove the policy from the taxable estate.
There are a few caveats in regard to making sure the policy goes untaxed. First, the trust must be irrevocable. This means it cannot be reversed. Once you have set up a life insurance trust, the policy goes into the trust. Once the policy belongs to the trust it is no longer in your control. For this reason, you cannot name yourself as trustee. Most commonly, a spouse or adult child is listed as trustee, additionally, there are trust companies and banks that are willing to work as trustee for a fee. Either way, the grantor (the person setting up the trust) is not allowed to have any control or perform any “incidents of ownership” over the insurance policy after the trust is established.
However, a life insurance trust grants additional control over how money is distributed. With a typical life insurance policy, the beneficiaries receive a pay-out upon the death of the insured. With a trust, the grantor can set conditions on how the money is distributed. The trust also protects the funds from creditors. Because the trust is not subject to probate, your beneficiaries will have the money available immediately and can use it for your after-death expenses.
The Importance Of Reaching Out To A Trust Attorney
Because a life insurance trust is irrevocable, it’s important to set it up properly the first time. If you believe a life insurance trust is a good way to help manage the proceeds of your life insurance after your death, you will need professional assistance. You and your family may benefit greatly by avoiding the estate taxes associated with a traditional life insurance payout. Contact the attorneys at De Bruin Law Firm for an expert consultation. We have the knowledge and experience you need to set up a trust that will meet your wishes and goals.