What is the purpose of a life insurance trust?
A life insurance trust provides one with more control over one’s insurance policies and the funds that are paid from them. It also allows one to lower or remove estate taxes so that a larger portion of the estate can be left for one’s beneficiaries. The insurance trust has ownership of the insurance policies, thereby excluding the policies from one’s estate.
Upon transferring one’s insurance policy to a trust, if the estate is still required to pay estate taxes, one can lower the estate tax by allowing the trust to purchase more life insurance. In so doing, the trust will be excluded from one’s estate, and thus, the proceeds will also not be subject to estate taxes. And since insurance proceeds are immediately available following one’s death, there is no requirement that the assets be liquidated in order to pay estate taxes.
When establishing an irrevocable life insurance trust, the grantor is the creator of the trust, and the trustee is chosen by the grantor to manage the trust. The beneficiaries who are named in the trust will be the recipients of the assets contained within the trust following the death of the grantor. The trust buys the insurance policy in which the grantor is the insured while the trust is the owner and, in most instances, the beneficiary. Upon payment of the insurance proceeds following the death of the grantor, the trustee will accumulate the funds, which will be used to pay estate taxes and other expenses, and then disburse the remainder to the beneficiaries.
Other Frequently Asked Questions
- Am I responsible for paying the rest of my deceased spouse’s bill?
- Are holographic wills valid in California?
- Do I have to leave assets to my children equally?
- Do I have to use a lawyer for the probate process?
- Does all property go through probate when a person dies?
- Does an executor or administrator receive compensation?
- Does the Court supervise the personal representative?
- How are taxes handled in probate?
- How can an estate plan avoid a conservatorship?
- How can I find out if there was a Will?
- How can I protect my children?
- How do creditors get paid?
- How long does probate take?
- How much does probate cost?
- How should I prepare to meet with my estate planning attorney?
- How will the debts of the decedent affect the beneficiaries?
- If I am named as executor in a Will, do I have to serve?
- If I establish a revocable living trust, will I lose control over my assets?
- If I serve as executor, will I get paid?
- If I transfer title to real property to my living trust, does the bank have the right to accelerate my mortgage?
- Is a will that was prepared in another state valid in California?
- Is it necessary to amend my will if I wish to bequeath certain assets to specific family members or friends?
- Is it possible to appoint a corporate trustee?
- Is my trust, which has title to my property, immune from lawsuits?
- Is probate necessary?
- Must I transfer all of my assets to my living trust?
- My child is married, and I don’t trust my child’s spouse. In the event they divorce, how can the inheritance be kept separate?
- Should estate planning documents be kept in a safe deposit box at a bank?
- Should I choose simplified probate procedures?
- Should I include a Medi-Cal planning section in my estate plan?
- What are disclaimer trusts and A-B trusts?
- What are the responsibilities of an executor or administrator?
- What does the Personal Representative do?
- What happens if the personal representative fails to perform his or her duty?
- What if someone dies and I have the Will in my possession?
- What if someone objects to the Will?
- What if the decedent owned land in more than one state?
- What if there is no Will or I cannot find a Will?
- What is a durable power of attorney?
- What is a pour-over will?
- What is a self-proving will?
- What is Probate?
- What is the best way to title pay-on-death bank accounts, retirement accounts and life insurance policies?
- What is the purpose of a life insurance trust?
- What would be the outcome if I became mentally disabled, and had no estate plan in place, or only had a will?
- When can a Will be contested?
- Who can and cannot be the personal representative?
- Who can contest a Will?