Use of Life Insurance to Fund Trusts

November 2, 2015

This edition of the Koldin Report E-Newsletter reviews the use of life insurance to fund Trusts to accomplish your estate planning objectives. All previous newsletters can be found on our website by clicking here .

Quite often one of the major assets you have to provide for your spouse and children is your life insurance. For many people, life insurance provides the funding to meet your estate planning objectives. Life insurance, in conjunction with a Living Trust or a Testamentary Trust (established by your Will), provides a way for you to continue to provide support to your spouse and children over a period of time after your death. The following are some examples of types of Trusts you can create either through a Living Trust or Testamentary Trust and then fund with life insurance at the time of your death.

LIVING TRUST OR TESTAMENTARY TRUSTS AS AN ASSET MANAGEMENT TRUST FOR MINORS:

You can fund an asset management trust with your life insurance to be used to pay for the support and education of your beneficiary (example: grandchild). Once the grandchild reaches a designated age such as 25 years old, he/she could receive the balance outright.

SUPPORT TRUST FOR A FAMILY MEMBER:

You can fund a support Trust for a family member with your life insurance to be used to support and pay expenses of a family member such as an adult child. This is often used when a child does not manage money well and would squander his/her inheritance. Such a trust would have the trustee be the custodian of the funds and use discretion as to when and how the funds should be spent.

INCOME FOR LIFE TRUST (Often used in Second Marriages) AS A LIVING TRUST OR TESTAMENTARY TRUST:

You can fund an income for life trust with your life insurance where the beneficiary would receive all of the income earned on trust assets, but the principal would remain in the living trust or testamentary trust. Upon the death of the beneficiary, the balance would then go to whomever you have designated. This type of trust is often used in a second marriage situation where you want to provide for your spouse, but on his/her death, the balance would then go to your children.

SUPPLEMENTAL NEEDS TRUST FOR CHILD WITH DISABILITIES:

You can fund a Supplemental Needs Trust with your life insurance. If you have a child (or grandchild) with disabilities who is receiving government benefits, you can leave your assets in a trust for your child which would be used to supplement the government benefits but not replace those benefits. Such a living trust or testamentary trust, if written properly, would not be deemed to be an asset of your child and therefore would not cause your child to lose government benefits. You can provide for your child with disabilities during his/her lifetime and then provide that any remaining balance after his/her death would go to remainder beneficiaries that you have designated.

GET HELP SETTING UP A LIVING TRUST OR TESTAMENTARY TRUST

At the Koldin Law Center, P.C., with offices in Syracuse and Rochester, New York, we have over 50 years of experience helping individuals with their estate planning objectives, including preparing Living Trusts or Supplementary Trusts for your beneficiaries. We do not charge a fee for the initial consultation. We welcome your children, family attorney, accountant, and/or financial planner to be present at the initial consultation.

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Contact us for a free consultation.