(352) 461-0645

The value of life insurance trusts

An estate planning option more families ought to know about.

You may think of life insurance in very simple terms: you buy a policy so that your loved ones will have some financial assistance when you die. But if you have assets of $1 million or more, you should view life insurance as a tool – kind of a Swiss army knife, in fact. Life insurance has many potential uses in estate planning, and a life insurance trust can certainly help a family.

What does a life insurance trust do? It enables you and your family to do three things in particular. One, it provides you, your spouse and your heirs with life insurance coverage after it is implemented. Two, it allows a trustee to distribute death benefits from a life insurance policy as that trustee sees fit. Three, it gives you the chance to reduce your estate taxes.

When you create a life insurance trust, you are creating an entity (the trust) to buy life insurance policies for you and your loved ones. You don’t own the policies, the trust does. So the insurance proceeds go into the trust when someone passes away. Because the trust owns the insurance policies instead of a person, the insurance proceeds aren’t subject to probate, income taxes or estate taxes. The trustee can distribute those proceeds to one or more parties as stipulated in the language of the trust. Also, if your estate ends up really large, the trust can buy additional life insurance to provide additional cash to pay additional estate taxes.

Sometimes these trusts establish investment policies for life insurance proceeds, and even timelines for who receives what when (families may want to delay an heir from legally receiving an inheritance until age 18 or 21, for example).

Why not just have someone else own my insurance policy? That scenario can lead to major financial and familial headaches. If that person dies before you die, the cash value of the policy will be included in their taxable estate. So the heirs (and relatives) of that person will have higher estate taxes to pay as a result. Also, if you do this, you surrender control of your policy; the loved one you trust could end up naming another beneficiary or even cashing your policy out.

A decision for life. Almost all life insurance trusts are irrevocable trusts. That is, they are legally “set in stone” once created, unlike a revocable trust which can be amended or revoked after creation. You can make these trusts revocable, but if you do, you lose the tax benefit: the insurance proceeds will be included in your taxable estate when you die, which could increase the estate tax bill for your heirs. However, some irrevocable life insurance trusts purchase survivorship life insurance in a profit sharing plan to permit the ability to change beneficiaries.

If you’d like to know more about life insurance trusts or the potentially significant changes in estate taxes over the next few years, talk to a qualified legal professional/attorney today.

These are the views of the author and should not be construed as investment advice.  All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation. 16834 | 2520310

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting Representative or the Representative’s Broker/Dealer. This information should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. www.petermontoya.com, www.montoyaregistry.com, www.marketinglibrary.net

Make the REST of your life
the BEST of your life.

For more than 14 years our mission at West Financial Group has been to guide our valued clients to financial security. We strive to address all of your concerns, ensure you understand the products we recommend and take pride in knowing you’re comfortable with the direction and strategy we provide you.

Our goal is to provide a “WOW” experience at every client interaction! We want every meeting, phone call and event to be an interaction worth talking about. We want our clients to be able to say, “WOW, what an experience! I can't wait to tell my friends about our financial professional.”

Whether it’s financial, retirement, legacy planning or optimizing your future wealth, our approach includes understanding your unique situation, exploring your goals and discovering the best way to make the REST of your life, the BEST of your life. By getting to know you and your family, we serve as financial guides who keep your best interests in mind throughout the entire process.

Skip West | Financial Planner | West Financial Group

Latest blog posts.

Smart Ways to a Happier Retirement.

Monday, December 3, 2018

Saving for retirement seems like a daunting task, and we are always looking for ways to make it a little easier on ourselves.  With the cost of living increasing every day and wages seemingly at a standstill every little bit of advice helps when it comes to making sure you will have money to live on in your golden years.

Here are four smart ways to a happier retirement:

Learn more...

How can I get that extra monetary cushion during my golden years?

Monday, November 5, 2018

Ideally, your golden years are a time to relax and enjoy your grandkids and the fun you've worked your whole life to have.  You want to keep things simple in every area, including your finances. Often, a successful financial retirement portfolio is best gained by just that: simplicity.

One way to make your retirement more straightforward and successful is through annuities. Annuities work as a buffer, helping to build tax-deferred savings to cover retirement costs like living expenses and healthcare.

Learn more...

Latest tips.

Interested in staying the loop with the latest financial tips and information about upcoming dinner discussions? Then sign up for our FREE email newsletter.

* indicates required

Connect with us.