Have you heard of a life insurance trust?
This estate planning strategy gives you more control over your life insurance benefits.
A life insurance trust allows you to direct what occurs to your life insurance policy in more detail than is possible with a plain beneficiary form. A properly drafted life insurance trust can also help to reduce your estate tax liability if your estate may be subject to the federal estate tax.
It can be risky to name your minor children as the beneficiaries of your policy. If your children are not yet adults, the insurance company often requires a court-appointed conservator to receive the funds, a potentially costly and lengthy process. Many people may decide to leave the policy benefits directly to the children’s caretaker to avoid this conservatorship issue.
But, leaving the policy benefits to your children’s caretaker outright doesn’t ensure that the money is used for the benefit of your children. Policy benefits paid directly to a caretaker could be lost due to the caretaker’s bankruptcy, divorce, or as a result of claims from the Internal Revenue Service or other creditors. A life insurance trust can protect what you’re leaving behind and ensure it is used for the benefit of your beneficiaries.