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Placing life insurance in a trust

Life insurance is a way many Florida residents may choose to take care of their beneficiaries when they no longer can. Yet, without forethought, insurance policies may be subject to estate tax and creditor levies. It may be beneficial to consider the implementation of a irrevocable life insurance trust.

Life insurance policies allow an individual to provide a family with funds to cover end-of-life costs and the loss of the grantor's contribution to household expenses. Yet, without protecting these assets, creditors may be able to seize the proceeds to repay a debt. In addition, if the policy is added to one's estate upon death, it may increase the amount of estate tax that might need to paid.

An insurance policy placed in an irrevocable trust is not subject to creditors and estate taxes. Since the proceeds will not shrink, the amount of insurance an individual requires may be reduced. As a trust, this vehicle is not subjected to the probate process.

Some beneficiaries are financially affected by a large inheritance provided in a lump sum. As a trust, the Irrevocable Life Insurance Trust makes it possible for the grantor to decide how the funds will be distributed. Another aspect of the ILIT is its lack of impact on a beneficiary's ability to collect government assistance if the beneficiary is disabled. Government assistance programs often cease if the individual inherits a large estate. With a trust, the inheritor may use trust proceeds for certain expenses without being forced to lose such assistance.

Speaking with an attorney concerning the options an ILIT may provide when preparing an estate plan may be beneficial. The attorney might help structure the life insurance trust to meet the future needs of beneficiaries.

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