You’ve done a good job of preparing a financial safety net for your family. You worked with your financial advisor to ensure you own sufficient life insurance for the comfort and support of your family and to pay debts and estate taxes. Buying sufficient life insurance coverage is just the first step. Don’t stop there! Think about what will happen to the insurance money after your death.
Do your loved ones have any creditors, or divorcing spouses, who might take some of the money? Will your family know how to use or invest the money wisely? Remember, your spouse, children or other loved ones may be dealing with a large amount of money for the first time. They might make costly mistakes that can be avoided by using a Life Insurance Trust.
A Life Insurance Trust is a special type of trust where your trustee hold and manages a life insurance policy for the beneficiaries of your loved ones. As the trust creator, you name the Trustee as both the owner and beneficiary of a life insurance policy. When you die, your trustee collects the life insurance money, invests it prudently and makes distributions to your loved ones according to the instructions you put in your Life Insurance Trust document.
Advantages of a Life Insurance Trust include:
· You determine when and in what amounts the life insurance proceeds – or the income it generates, will be paid out to your loved ones.
· You have greater flexibility over when and how your loved ones receive distributions with your own trust than the life insurance company can give you.
· You can provide financial security for minor children without the extra expense and complexities of a court-appointed guardian to control their share of the insurance money.
· You can keep the life insurance money out of your estate to avoid paying probate administration expenses and estate taxes on it.
Naming a trustee who is experienced in investments and other financial matters helps ensure that your life insurance proceeds will be prudently managed and invested according to your objectives for your trust and your beneficiaries’ needs.
Coordinate your Life Insurance Trust setup with your estate planning attorney and financial advisor to help ensure that you have the right type and amount of insurance in your trust and that you have the control you want over the ultimate distributions from your trust.
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