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Do You Need a Trust?

Estate planning is a tricky topic that almost no one, except estate planners, likes to talk about. But it is an important topic and, unfortunately, death is something that’s going to happen to all of us whether we talk about it or not, so it’s best to just face up to it and be prepared.

A popular type of estate planning strategy is to use a trust to hold assets and dictate their distribution. Many individuals like the idea of putting their life insurance policies into a trust. It’s not necessary to do so, but it can have a few advantages:

  1. Irrevocable trusts can keep assets safe from creditors: In some cases (including divorce) irrevocable trusts can keep your assets safe from creditors. This is important only if you have a life insurance policy that accumulates cash values.
  2. Trusts can spell out conditions: If you make a trust the beneficiary of your life insurance policy, then you have more control over when your heirs get the death benefit proceeds. You cannot stipulate these conditions on the policy itself.

With that said, there is no need to have a life insurance trust in place. Life insurance policy death benefits are federal tax exempts and do not need to go through probate. Since those are two of the most important priorities for most individuals, knowing that you don’t need a trust in order to achieve them should help you decide whether or not that’s a priority in your life, because trusts aren’t always easy to create. You need to find and appoint a trustee, have the papers drawn up, and deal with gifting issues when you decide to appoint one as the owner of a life insurance policy that you are still paying premiums for.

So consider all the angles carefully and make sure a trust works with your goals and priorities before you go to the trouble.


May 11, 2011



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