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Using a trust to hold a life insurance policy

by | May 11, 2015 | Estate Planning | 0 comments

Naming a trust as the beneficiary of a life insurance policy can be a wise decision in some situations. Although many people name a person as the beneficiary of their life insurance policy, using a trust instead can be helpful for Florida families with large estates, financially irresponsible heirs or special needs children.

One option that a person has while planning their estate is to set up an irrevocable life insurance trust. By placing life insurance in a trust, the value of the policy is effectively held outside of the benefactor’s estate. When beneficiaries begin receiving funds from the trust, they will not be obligated to pay any estate or inheritance taxes on the value of the trust.

Another type of trust that could hold a life insurance policy is a simple living trust. This type of trust can be revocable or irrevocable, and it can hold all of the benefactor’s assets, including a life insurance policy. If a family has a child with special needs, a special needs trust may be created to hold a life insurance policy. By creating a special needs trust, a child with special needs can receive their inheritance without becoming ineligible for government assistance.

A person who is in the process of planning their estate might want to speak with an estate planning lawyer about setting up a trust to hold a life insurance policy. Depending on a family’s unique circumstances and needs, a lawyer may be able to help a person to create a simple or complex trust document to handle the dispersal of their assets.