The Importance of a Life Insurance Trust

            Those who know about life insurance understand that it is a way to protect loved ones in case some unfortunate event was to occur. A life insurance policy is designed to provide funds to the beneficiaries of the policy once the insured passes away. From the name of this article, you will logically ask yourself what is a life insurance trust? In its most simples form, a trust is an instrument used to hold assets, managed by a trustee, for the benefit of beneficiaries. Therefore, a life insurance trust will help to disperse the funds within the life insurance policy.

            Now you may be asking yourself, “why do I need a life insurance trust if my life insurance policy will provide my family with funds to help with their financial needs?” The reality is that you do not need a life insurance trust, just as much as you technically do not need a Last Will and Testament. A will allows the testator to create a plan of disposition for his or her assets upon death. If the person did not create a will, then all the probate assets, meaning those titled in the decedent’s name individually, will be distributed according to the Florida Intestacy Statute. The Life Insurance Trust is an extra measure that a person can take to make sure that any money that is disbursed from the policy will have a lasting effect.

At this point you might be thinking, what are the benefits of a life insurance trust? The benefits of a life insurance trust include:

  1. Management – a trust provides for the management and distribution of assets. The income and principal of the trust can be distributed according to your wishes.
  2. Protection from Creditors – the life insurance proceeds may not be subject to the claims of creditors under applicable law.
  3. Keeping the assets within the designed beneficiaries – a trust is a good way to make sure that the money is used according to your wishes and it stays within the class of beneficiaries that it was intended.
  4. Minimize Federal Taxes – if drafted properly to remove any incident of ownership, the trust may not be subject to estate tax.
  5. Qualification for Government Benefits – when the proceeds of the life insurance are owned by the trust, it may protect any beneficiaries receiving government benefits by instructing the trustee to make limited distributions to maintain the government benefits.
  6. Minors – if the beneficiaries are minors, the trust can provide a vehicle to invest the assets until they attain adulthood. The trust can distribute income or principal for the health, education, maintenance and support of the beneficiaries.
  7. Liquidity – the trust can be used to pay for debts and obligations of the decedent.

A life insurance trust is not be necessary but it is a desired instrument that will help protect your investment and leave a more secure way for your policy to benefit your beneficiaries. If you went through the trouble of leaving something to your family for their future, then it will be essential to create a vehicle that will have a lasting impact on their future.