In golf and tennis, it is important
to keep your eye on the ball so you make good contact. However,
it is equally important to follow through so the ball goes where
you want it to go.
In life insurance planning, like golf and tennis,
many people are good at planning what their needs are but neglect
following through by thinking about what will happen to their
life insurance proceeds when they die. Sometimes those proceeds
are mismanaged and go into the rough or off the court. A life
insurance trust may help.
A trust may come in handy if your spouse and/or
other beneficiaries are not accustomed to managing large sums
of money. By establishing a trust, you are just following through
on the contingency plans that prompted you to purchase life insurance
in the first place.
As the creator of the trust, you choose the trustee
for the trust that becomes the owner and beneficiary of the insurance
policy(ies) on your life. When you die, your trustee will collect
the insurance proceeds, invest them prudently, and make distributions
of income and principal to your beneficiaries according to your
instructions. The burden of financial management is thus taken
from your beneficiaries.
Here's What You Can Do
With a Life Insurance Trust:
- Set up an investment plan for the insurance
proceeds and know that the plan will be carried out by experienced
professionals;
- Enable your trustee to make special distributions
to one or more beneficiaries in case of an emergency;
- Instruct your trustee when and to whom distributions
should be made;
- Avoid the complexities of court-appointed guardianship
if you name minor children as trust beneficiaries; and
- Unify your estate plan by having your estate
assets "poured over" into the life insurance trust so that
all of your assets can be administered by a single trustee.
A life insurance trust can also help alleviate
estate taxes. Recent cases have clarified the federal estate-tax
liability of insurance proceeds. The proceeds will not be subject
to estate tax if the trust is irrevocable and if you do not hold
any incidents of ownership (generally, the economic benefits
of a policy) in the insurance at the time of your death and if
you do not transfer any of the incidents of ownership within
three years of your death. In an irrevocable life insurance trust,
the trust purchases and owns the policy for you (your connection
to the transaction is limited to taking the physical and transferring
funds to the trust). So, through your life insurance trust, you
can make certain that your insurance proceeds will remain free
of estate taxes.
Note that federal estate taxes are scheduled for
repeal in 2010. Until then, however, estate taxes continue to
pose a threat to larger estates.
The information above is provided as a service by Security Mutual Life Insurance
Company of New York. Protecting your personal and financial security is
important to us. A Security Mutual Life Representative,
working in conjunction with your other professional advisors, can be instrumental
in helping you plan for the best financial future for you and your family.
Please contact us if you have any questions
or are in need of planning assistance. (Legal
Notice).
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