What You Should Know
- Virtually any life insurance policy can be inserted into a trust
- Trusts can be expensive and require a lot of attention in order to get everything squared away
- If you aren't sure whether you'll need to make changes down the line, you should choose a revokable trust
If you are shopping around for life insurance, one thing you might be interested in is whether you can make a trust the beneficiary of your life insurance policy.
There are a lot of life insurance companies that offer policies that can be inserted into a trust. Before you purchase a life insurance policy, you can learn more about the benefits of using a trust as your policy's beneficiary.
To learn more about using a trust with your life insurance, you can consult a life insurance guide or do some research online to see life insurance trust samples and how it all works.
You may also be interested in researching the benefits of a life insurance trust for a minor child. In this article, we'll explain the basics of life insurance with a trust.
As you shop around for life insurance coverage, remember that every company is different. So you should ask about the life insurance beneficiary rules from any life insurance company before you purchase a policy.
Don't forget to use our free tool above to find and compare life insurance rates for policies that will work best for you.
Can a trust be the owner of a life insurance policy?
You can name a trust as the beneficiary for most life insurance policies. Depending on the company you plan to do business with, how this works might vary.
Essentially, using a trust as the beneficiary of your policy could be a huge benefit to your loved ones after you pass away. This is especially true if you have minor children.
If you are looking for the best life insurance for parentsor guardians, setting up a trust as the beneficiary may be in your kids' best interest.
Naming a trust as the beneficiary of your life insurance policy will allow the trustee to manage and care for the funds from the death benefit of your policy. That way, funds will be held safely for children when they become adults.
While using a trust in association with your life insurance may sound complicated, it may be the right decision for you and your family.
What are the advantages and disadvantages of putting life insurance in trust?
Using a trust as the beneficiary of your life insurance policy could be a good idea. Depending on your financial status and the age of your children, there are a few advantages that may work for you.
Because the process of probate is arduous and expensive, finding a way to sidestep that to allow your kids and other loved ones to be cared for in the event of your death is a huge advantage.
Additionally, you are able to control the time and the ways in which your children receive their part of your death benefit—and other wealth depending on how the trust is set up—rather than having them receive it all at once as the result of your life insurance policy.
But there are also disadvantages of putting life insurance in trust.
One of the largest disadvantages to this concept is the cost of setting up a trust.
You have to pay for the legal fees associated with properly setting up a trust. While this means your loved ones are saving money down the line, it might not be feasible for you to pay so much at once.
Additionally, the nature of a trust dictates that you need to have certain other aspects of your estate planned and properly organized. You will need a will, and you may also need other documents.
Which type of trust should I use as my life insurance policy's beneficiary?
You have two options for setting up a trust as the beneficiary of your life insurance policy. You can either use a revocable trust or an irrevocable trust.
If you are wondering, "can a revocable trust own a life insurance policy?" or "would an irrevocable trust be best for my family?" The answer depends on your situation.
As the names suggest, a revocable trust allows for the trust to be examined and modified if necessary. An irrevocable trust is difficult, if not altogether impossible, to modify after it has been created.
The major benefit of an irrevocable trust is the tax shelter it provides for its beneficiaries.
An irrevocable trust essentially removes assets from what is considered the taxable estate. This allows the beneficiaries of a trust to avoid an estate tax after your death.
A revocable trust is the more common of the two. This type of trust can be altered, and beneficiaries can be added or removed. But since assets are not completely shielded with a revocable trust, some people choose the rigidity of an irrevocable trust instead.
You can find an irrevocable life insurance trust sample online to see how the plan might be laid out. It is also a good idea to consult an attorney who understands trusts and is able to help you choose the option that would work best for your family.
What is a major problem with naming a trust as the beneficiary of a life insurance policy?
As stated above, the most inconvenient thing about naming a trust as the beneficiary of your life insurance policy is the overall cost and initial setup.
But creating a trust and using it to better serve your family may not be a bad idea, depending on your overall wealth.
If you have questions about creating a trust or whether that's the best idea for you, speak to an attorney before making any final decisions.
And if you are looking for a life insurance policy that works best for you and your loved ones, be sure to use our free quote tool below to compare policies and find the best rates.