Chances are that you have stumbled across this article trying to find your way into some information about a life insurance trust. You have come to the right place! Getting set up with a trust isn’t just for the wealthy families, but for all families regardless of income. You probably just bought some life insurance for you and your family just in case something were to happen to you. You can set up a trust for your family and make sure it is being used the way you think it should be used, or in case you and your spouse both passes and all the death benefits go to your young child, they may need some necessary guidelines or trustee in place. Either way setting up a trust is beneficial and we will explain why in this article. Some important key points of the article are as follows;
What is a life insurance trust?
A life insurance trust is a trust that is set up for the main purpose of owning a life insurance policy. A trust has the ability to purchase life insurance policies under the grantor (the person who established the trust, or trust beneficiaries).
How does life insurance trust work?
Life insurance trust works the same way as regular life insurance policies far as the benefits being given to the beneficiaries of the insured, the only difference is that with a trust, a beneficiary will not be allowed the money unless they follow the terms that are included in the trust document. In the trust document it will specify who the trust beneficiaries are and how they will receive the distributions of the trust and how the money in the trust can be invested.
Why should I get a trust?
Let me make an example for you and then we can decide if setting up a trust is a good idea or not. Mark and Sally have literally started from the bottom, they lived with their parents in the beginning and worked their way into a decent estate. They are looking down the road and realize that they may be passing away within a decade or two and want to make sure that all they have worked for, their life savings, go to the people they love and cherish. Mark and Sally made a list of people they want to help from their family but then hit a roadblock when they realized that none of the people they listed are not as financially sophisticated as they are. Quick thoughts of irresponsibility with the lump sum gift occurred and realized that the money left for them could do more harm than good. They decided to set up a trust with an attorney and realized that they made the best decision of their life! We think it’s safe to conclude that in this situation setting up a trust was a better than good idea, it was a fantastic idea!
What are the types of life insurance trusts?
Your life insurance trust can either be revocable, which means that you can make changes or revoke it, or irrevocable, which means that you may not alter or revoke the trust once it has been created. There are many other types of life insurance trusts, and it all depends on the type of assets that you are trying to protect or your goals in setting up a trust, there may be some trust that will meet your needs better than others.
Revocable Trust
- This type of trust will likely allow the insured to be the sole trustee of your trust.
- The grantor/sole trustee has the ability to revise the trust up until death.
- Assets in a living trust will pass to heirs sooner than a will.
- A revocable trust does not offer the grantor tax advantages.
- To avoid probate the grantor must create a will to designate beneficiaries for the remaining assets.
Irrevocable Life Insurance Trust
- This type of trust is beneficial for wealthy people because it can help protect their heirs from estate taxes.
- This type of trust is also essentially giving up ownership and control of your assets, so choose those assets carefully.
- If you have children who are minors, or who otherwise need financial protection, an Irrevocable life insurance trust hold assets and protect them from the creditors of a beneficiary.
Living Trusts
- This is a type of trust that immediately become effective as soon as the insured created the trust.
Testamentary Trusts
- This type of trust is often created within wills and is created but does not become effective until the insured’s death.
Grantor Retained Annuity Trust (GRAT)
- Provides payments that are derived from interest earned from assets within the investment.
- This trust has a purpose for a certain duration of time.
- Any taxes are paid up front during initiation of the trust.
Clifford Trust
- Lets grantors of the trust to put income providing assets into it for later withdrawal.
- The trust cannot last less than 10 years and a day.
Revocable trust vs. irrevocable trust
For individual who is looking to fund their trust with life insurance and make sure it is not part of the estate, an irrevocable trust is a way to go. But if you need to have some flexibility obviously you’d want a revocable trust.
How do I create a trust document?
When you plan on creating your trust document it is very important to use a write out your terms and conditions of which you want the trust to be handled on your behalf. The best way to have a good trust document is by simply mocking a model trust form which you can just readjust it to your particular needs. You can either find a good model by asking somebody you already know who has set up a trust, or you can look up online some free templates to guide you through the document. If you need further assistance, contact an attorney because you are going to need them to file your trust anyway.
Setting up trust online
You just finished reading the article and now you want to create a trust, then figured out ‘Hey I can set a trust up online’! Not so fast! Just kidding, you can. Any little mistake can cost you a lot more time for revision and not to mention all the money you will have to spend just because you overlooked something very small but now can’t fix it without a lawyer. Save yourself some trouble and consult a trust and estate attorney. On the bright side of setting up trust online can be easy with some new online legal sites like LegalZoom.com.
What should I put in my trust document?
You can place many valuable assets of yours in your trusts such as cash, annuities, CDs, stock or real estate. The first thing you need is a tax ID number from the IRS so that way you can attach those assets to that specific tax ID number. Then you will pace assets in the trust and they will no longer belong to you and are under the full control of the trustee.
What is the cost of obtaining a trust?
You’re looking at few thousand dollars if you get this complete with an experienced attorney or a few hundred if you do it online. Of course, you can go either way but if you have the money an experienced attorney is your best bet.
What are estate taxes?
Estate taxes are taxes that are put in place by the federal government. Federal estate taxes are costly and must be paid by your heirs before any transfer of assets takes place. In many cases, few have the cash which can force to take out loans or liquidate assets. In 2011 and 2012, the federal exemption is $5 million and the tax rate is 35%. If you have an estate that is larger, you will still have to pay the estate taxes and should prepare to reduce the burden on your heirs.
Final Thoughts
In conclusion, we believe that setting up a trust is very beneficial to everyone because who wants to pay Uncle Sam when you can set up the money for your grandchildren’s education! Or for security for your disabled child, or just for plain incompetence! You can’t help it if you have family who is incompetent, but you can help them learn how to handle money on your terms! Protect your assets and build a trust so that you can sleep easy tonight knowing that your hard earned cash and assets are safe. We recommend you to always speak to a professional attorney because the law can be tricky and we want to make sure you don’t get stuck! If you have any questions about trusts or concerns please feel free to contact us! Here at InsureChance our motto is to make life insurance simple, let us make your life a little more simple
