Should Your Life Insurance Policy Be Written In Trust?
If you're a parent with young children, it can be hard to think about your legacy. You want to know they'll be cared for when you're gone, but how? Should your life insurance policy be written in trust?
What Is A Trust And Who Should Consider One?
A trust is a legal device that allows the executor of the estate to establish an independent, separate bank account into which family income is deposited and from which expenses are paid. These arrangements are easier than managing assets directly will also provide protection against creditors without limiting the liability as would happen with individual asset protection trusts such as single-member LLCs or corporation.
These trusts can be revocable or irrevocable. The former may be set up by an individual to maintain control over the assets and are usually established during an individual's lifetime. The latter, which may be established after death, is usually used to protect a surviving partner.
The revocable trust is useful to parents who want to maintain control over their assets for their children if they become disabled or are deemed unable to handle their own finances. Trusts such as these can also help take care of aging parents who might need financial assistance and supervision because of various illnesses, including dementia or Alzheimer's disease.
If you're interested in establishing a trust, building one yourself or hiring a lawyer to do it for you, the first step is to start an irrevocable life insurance trust (ILIT). The ILIT allows the purchase of a life insurance policy and its funding via a tax-free distribution from an individual retirement account (IRA) at little or no cost. It also allows for the payment of premiums from other qualified plans such as 401(K).
The ILIT is a strong asset protection device that will help protect your family's assets and estate from creditors. Many people use ILITs because they are designed specifically to provide asset protection while still allowing for total control over assets.
What Is Life Insurance And How Can It Be Used To Secure Your Family's Future?
Life insurance is an insurance policy that provides payment to the beneficiary of a named person (the insured) upon the death of the insured. The death benefit is based on the face amount of the policy and typically will be funded with a lump-sum payment.
Almost anyone can buy life insurance, but few people use it properly. First, don't assume all life insurance policies are alike. All major companies provide life insurance policies through their affiliation with an independent agency; some companies do not use independent agencies at all or have them under administrative control.
The most common use of life insurance for the family is to provide needed cash in the event of an untimely death. This is accomplished by providing the beneficiary with funds to cover funeral expenses, pay off debts, and so on. Further, this money can be used as a safety net for your children or other loved ones until they are able to support themselves.
In addition, it provides a death benefit to your survivors if you pass away before your retirement – which is scheduled in 10, 20, or 30 years. Because this financial commitment will be placed on them while they are still grieving your loss and trying to survive without you, having it planned out can help take some of the financial stress off them during this extremely difficult period.
Another important consideration is that the funds are not immediately spent. Any money you leave behind will provide the inheritor with a constant stream of income.
So, why isn't everyone using this tool? One reason is because some companies don't offer it; they are more interested in profiting from selling you insurance than providing a valuable product to their customers. The other reason is that most people do not choose to use it properly. They fail to take advantage of the many features and benefits that can be added as an add-on to their existing plan. One of those possible benefits is the payment of a death benefit over a period of time instead of all at once. This is called "level term" or "term to 100". These are options that can be added to your existing life insurance policy and, along with others, provide the possibility for income for a much longer time. You can contact an independent agent to determine how Long Term Care options could be incorporated into your policy as well.
Again, these options may be used in conjunction with other strategies to provide some of the financial relief your family needs and deserve when they need it most.
To learn more about how to protect your family's future with a trust or life insurance, please call a fiduciary financial advisor at 704-482-2037. We are here to help.
About The Author:
Steve is an award winning author and recognized expert on retirement planning for families, businesses and government. He is an accomplished speaker and has shared his sound advice with thousands of clients throughout the country.
Our team at Fredrickson Financial Group is comprised of those who have been in business for years helping people in their efforts to secure their financial future. We have worked closely with many people on estate planning matters including planning for incapacity, retirement as well as other extraordinary events including divorce, medical issues or unexpected death.
We work with individuals, agencies and organizations in seeking the best possible solutions in accordance with their specific needs. We offer a variety of solutions including, but not limited to, trust and estate planning options including trust, estate, and entity formation services. We also assist our clients with life insurance benefits such as long-term care and benefit plans.
We wish you well on your continuing journey to a secure future.
Steve Fredrickson CPA 804-482-2037
Fredrickson Financial Group 804-482-2037
The post Important Consideration: Life Insurance Trusts appeared first on The Life Insurance Connection.
Author: Steve Fredrickson Publish date: Fri, Apr 06 2013 12:00 am Category: Insurance Blogs Read More0
Does A Trust Save Estate Taxes? When estate taxes or GST tax is discussed, many people will automatically assume that it is about avoiding or at least reducing the amount of taxes due. The truth is that this type of trust can save your heirs more money than just the reduction in the estate taxes. Here are some other advantages of a properly established trust.
Conclusion
Like any tax planning or wealth building strategy, the trust is not a magic bullet for avoiding taxes. However, it should be considered as a tool to help reduce the amount of money you leave to your heirs and therefore reduce the tax liability they have to pay.
If you are concerned about estate taxes or at least the amount of taxes your family will have to pay after your death, contact an attorney who specializes in estate planning. While there are too many variables involved to give specific advice, an experienced professional can help you identify and meet all of your objectives including avoiding unnecessary taxation on both federal and state levels. As always there are no guarantees for it in IRAs or 401k's either.