Planning for your family's future years in advance might seem overwhelming. However if you leave behind poorly managed assets or no final wishes, your family will inherit a mess rather than your estate. Choosing to establish a trust fund can help to avoid probate costs and estate taxes to ensure that your loved ones are taken care of and don't have to worry about paying for your death. Aside from a family trust, you can establish a trust fund for a life insurance policy beneficiary.
Contact an Attorney
A trust is a legal entity; therefore an attorney should be consulted to prepare the trust documents. He can provide guidance during the decision-making process and will ensure the trust is established correctly according to the law. If you have an existing life insurance policy, the attorney can move it into the trust. If you buy a new policy after establishing the trust, the attorney can ensure the purchase is completed correctly.
Designate the Trustee
Because the trust will be irrevocable, you are not permitted to act as the trustee. You need to designate another individual to serve as the trustee. Optionally, you can elect to name a third party, like a bank, as the trustee. This is an important job, because they trustee controls the assets held by the trust. This person needs to act unbiased towards the beneficiaries and follow your instructions.
Choose the Beneficiaries
The beneficiaries of the trust receive the benefits of the life insurance policy when you die. The insurance company will pay out the proper amount to the trust, and the trustee then distributes the funds as you have instructed. You can name any one as a beneficiary, and designate what amount they are to receive and in what method of payment. For example, if you have multiple children, you could choose to split it evenly and disburse in one lump sum or, alternatively, establish some type of payment schedule.
Once the terms of your new trust are finalized it becomes irrevocable, and you're no longer in control. It's important to completely understand the conditions of the trust while you are creating it. Although a life estate trust is irrevocable, some state laws may permit you to revoke the trust, or alter the terms and conditions. Generally, for this to work, all of the beneficiaries need to agree in writing to the new terms and conditions.
- Dianne Reis, Attorney at Law: What Is A Life Insurance Trust?
- Estate Planning: Understanding Life Insurance Trusts
- Nolo: Life Insurance Trusts
- CNN Money: Types of Life Insurance Policies
- Feeley and Driscoll: The Pros and Cons of Irrevocable Life Insurance Trusts
- Sykes Elder Law: Can You Undo and Irrevocable Trust?
- Wealth Counsel: Selecting an Irrevocable Trustee