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RayAnswers, Attorney
Category: Estate Law
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Experience:  Texas lawyer for 30 years in Estate law
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What are the pros and cons of creating a Life Insurance Trust

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What are the pros and cons of creating a Life Insurance Trust valued at $3 million?

Thanks for your question and good evening.

Here setting up an irrevocable life insurance trust as a legal entity that owns the life insurance policies you move into it. Because the trust owns your life insurance benefits, the benefits aren’t included in your personal estate and are not used to calculate estate taxes.

 

 

You would need a local trust lawyer to help you set up the terms of your life insurance trust. Once you set it up, you cannot change the terms of an irrevocable trust so it is important to do this correctly as part of estate planning.

The primary pros/benefits here are as follows:

  • The proceeds of your life insurance policy are removed from your estate and become free of estate taxes.
  • The trust does not pass through the probate process. You retain the privacy factor.
  • Beneficiaries can use trust proceeds to pay estate taxes.
  • Proceeds held in the trust may be protected from the creditors of the trust beneficiaries.
  • If you are married, you can arrange for your spouse to receive income from the trust during his or her lifetime.

The general cons are as follows:

  • Once the trust is set up, you can’t change its terms. It is irrevocable.
  • Once you transfer a life insurance policy to the trust, you 1) give up control over that policy, 2) can’t make loans or withdrawals of the cash value of that policy, and 3) can’t change its beneficiaries.
  • Trustees must carefully handle gifts made to the trust to prevent triggering gift taxes.
  • If you use a Professional trustee they usually charge annual administration fees so there are expenses for a trust.

Overall this may be agood thing for you given the large amount of insurance.You may certainly set up such a trust and fund it with life insurance proceeds.

 

You can locate a local trust lawyer here.

 

https://www.floridabar.org/tfb/TFBConsum.nsf/48E76203493B82AD852567090070C9B9/EC2322E512B83D1E85256B2F006CC812?OpenDocument



It has been my pleasure to assist you tonight.Please let me know if you have follow up.Thanks again.

 

I hope that you will be so kind as to leave a positive rating. If you do have any additional questions about my answer please click the "Continue Conversation Link" so I can provide you with a fully satisfactory answer. Please be aware that any rating of 1 or 2 is reflected as a negative rating and I receive no credit for my answers.

 

 



This communication does not establish an attorney-client relationship.Information provided here is not legal advice. Rather it is simply general information.

RayAnswers and 2 other Estate Law Specialists are ready to help you
Here is another reference for you.

http://www.youtube.com/watch?v=gd6POapq9KE

Thanks again foe letting me help you.

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