How to Name Trust as Beneficiary of Life Insurance

Shopping for life insurance should be on the top of everyone’s priority list, but there many factors that make people delay this important decision. There are individuals who do not like the idea of not receiving any benefits from life insurance themselves, while others would not like to add an extra expense to their budgets or simply have never thought of taking out insurance. However, when the decision depends on naming the person that will receive the proceeds upon their death, naming trust as beneficiary of life insurance could be a good option to keep in mind.

Life insurance trust is a non-correctable and irrevocable trust that can be used to make sure that proceeds of your beneficiary will not be included in the taxation of an estate. Federal laws protect homeowners from creditors trying to repossess a property after their death, but proceeds of a life insurance policy are always subject to estate taxation, unless an irrevocable life insurance trust has been taken out.

When it comes to your own life insurance, you can easily prevents this from happening by naming trust as beneficiary of your life insurance policy, this way the beneficiary of the policy will not be subject to estate taxes when you pass away. Transferring ownership of your estate to a life insurance trust is a great idea, but you need a trustee to make this action possible.

Designation of a trust as your beneficiary is easy, because you will not have to update the policy beneficiary form on a regular basis, or “as needed” when you name as beneficiary your wife and have to make such update after divorcing and so on. However, it could be complicated from the perspective of having to put control over your assets into someone else’s hands.

An IRS planning attorney or a qualified insurance broker can guide you step by step on how to name trust as beneficiary of life insurance. Naming an irrevocable life insurance trust will leave the proceeds outside the property and any estate taxation will be paid if it would be necessary without affecting the money that your beneficiaries will receive because trusts are not considered individuals.

Trust only comes into play when you die, so the sense to lose control over your estate is only hypothetical. When you name trust as the beneficiary, you become the grantor, your property will be the trust assets, and you only need to designate a trustee, who will be the entity or individual in charge of the trust management and, of course, your beneficiaries, whoever you want to receive the benefits or your life insurance trust.

Notwithstanding, there are different trusts you can choose from to establish your life insurance trust. Understanding the difference between them will help you to make the right decision for your beneficiaries. This why help from a knowledgeable professional is always advisable. Trusts can be name based on personal or financial situations, and you could make use of any of them sometime in life. Such trusts are Charitable Remainder Trusts, Living Trusts, Credit Shelter Trusts (CST), Generation-skipping Trusts, Incentive Trusts, QTIP Trusts and, naturally, Irrevocable Life Insurance Trusts.

Advantages of name trust as beneficiary of life insurance allows you to gain control over your life insurance policy, as opposite to what people usually believe. This way, you can appoint who will be the trustee that oversee the proceeds for children under 18, or specify how and whom the life insurance proceeds will be paid. In conclusion, a life insurance trust guarantees that your beneficiaries receive a lump sum at the time of your death, saving them from estate taxes, while protecting them from your creditors.

Author Bio: Jane Cook is on the team at a company that specializes in helping people with life insurance questions. 

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