When thinking about who you want to put as your beneficiary for your life insurance policy, you may be considering paying it to a trust rather than a person. A trust is a way to manage assets. It allows you to pass wealth down to those whom you have designated as beneficiaries of the trust. It’s a way to start a legacy financially for your loved ones.1
One condition that most life insurance companies have when it comes to paying your benefit to your trust is that the trust must already exist. You may not be able to establish a new trust with your life insurance policy because there’s no entity already existing to keep the trust open and valuable. Trusts created through life insurance would not exist until after you passed, which is why most do not allow it. If you created a trust while living, you can designate the pre-existing trust as the entity receiving your benefits.2
Rather than trying to leave your benefit to minors, who will not receive the money until they are 18 to 21 years of age due to state regulations, you can leave it to the trust for when they’re older.
If you have a trust already in place, it might be a good option for you if you’re looking for flexibility. Rather than trying to leave your benefit to minors, who will not receive the money until they are 18 to 21 years of age due to state regulations, you can leave it to the trust for when they’re older. This way the trustee can distribute the funds to your exact specifications. You may state you would like the funds to pay for the children’s everyday purchases like food and shelter. You may specify you want it to pay for their college. Moreover, you can ask whatever is left after those expenses to be distributed on special occasions like birthdays. Even if you have beneficiaries that are of age to receive the funds, they most likely do not have the experience to handle such a large sum of money. It may cause them extra stress, or they may not understand how to invest it in the things you were hoping they would.3
In regards to the death benefit, you have the option to attach terms to the benefit you would like the beneficiary to follow. Such terms come to fruition when the funds are added to your trust after your passing.2
Trusts can make for good beneficiaries if you’re looking for flexibility. It helps protect the finances you receive to help your loved ones with expenses after you’re gone. It gives you the opportunity to express your wishes for how you would like any extra money to be spent. Consult a local licensed life insurance Agent for more information on assigning your benefits to a trust.