As you do your estate planning, there are many different ways that you can use trusts to ensure that your wishes are carried out. Some people use an incentive trust to attempt to get their heirs to live in a certain way, while others use an educational trust to pay for college tuition. These are just two examples, but you can do a lot of different things with the right type of trust.
If you have a life insurance policy, you may find yourself wondering what a life insurance trust is and how it could be beneficial to you. It’s crucial to understand this as you make your plan so that you can put your family in the best possible position.
How it works
Essentially, the life insurance trust takes over ownership of your life insurance policy. It is not a policy owned by you specifically, though it is still tied to your life, it is instead owned by the trust and the money will pay out into the trust when you pass away.
One reason to do this is that it can reduce the amount of value in your estate. If the value of the life insurance was going to put your estate over a certain level so that you had to pay additional taxes, shifting ownership to a trust can get you down below that line.
Another reason to use a life insurance trust is that the trust can then handle the distributions of the money once the policy pays out. Instead of listing numerous beneficiaries and giving them all an equal share, you simply have it pay out into the trust and then that trust determines how your heirs get their portion of the money.
It’s very important to get this set up properly if it’s a tool you’d like to use, so be sure you know what steps to take.