September 2016

Irrevocable Life Insurance Trusts

Life insurance can be a significant asset for many individuals. We desire to leave our family on sound financial footing in the event we are no longer available to care for them. For many clients, obtaining a life insurance policy is a simple way to provide financial support and stability for their loved-ones.

There are different ways you can own and manage your life insurance policies. Not all structures will provide the desired protection while leaving the maximum amount of assets available to support your family. For example, leaving life insurance proceeds directly to your family members can have unintended consequences if not structured properly. A great alternative method for providing the benefits to your spouse and children is to put the policy (and proceeds from the policy) in an irrevocable trust for their benefit.

A major benefit of using an irrevocable trust to hold and manage your life insurance policies is that the trust structure allows your beneficiaries access to the funds when needed, without subjecting them to claims arising from divorce, accidents, or other creditors.

The use of an irrevocable trust can also allow someone else to oversee the policy during your lifetime (including making sure that the premiums are paid), and to manage the funds once the proceeds are paid out. This can be particularly helpful if your beneficiaries are minors, or otherwise not in a position to manage and invest significant sums.

A third benefit of utilizing an irrevocable trust is that the policy and proceeds are removed from your taxable estate. This helps ensure that the money will be there to provide for your family without the worry that a large portion will be subject to estate taxes upon your death. Since, under this structure, the trust owns the policy and proceeds, the assets can also be removed from the estates of your spouse and children, thereby ensuring that their inheritance is not subject to estate tax upon their deaths.