The income and the principal of the trust can be distributed according to your wishes. If the proceeds of the life insurance are distributed outright to your beneficiaries, you will have no control of how they spend the funds.
Therefore, having a life insurance trust may be beneficial to insurance that the proceeds last for a reasonable time and are used properly. Under most circumstances, proceeds from life insurance is protected under state law.
Your creditors will not be able to attach to any proceeds of the life insurance. The advantage of having a life insurance trust is that if your beneficiaries have creditors, the creditors may be able to attack any distributions. Proper provisions can be put in place to protect your beneficiaries from their creditors or any unforeseen divorce. If the federal estate tax is a concern, the use of the ILIT can be used to reduce any estate tax liability.
It is particularly important to have a consult with an estate planning attorney well versed with federal tax law in this circumstances. If you have a beneficiary that is disabled and is receiving governmental assistance like Medicaid, then having a life insurance trust with special needs provisions is extremely important. The life insurance trust can be set up in a way to protect the interest of the special needs person to maintain his or her government benefits.
Guardianship can be expensive and court intrusive. If the life insurance trust is used, when you pass away the trust will be beneficiary and the proceeds can be administered for the benefit of the minor without any court intervention. Although a life insurance policy avoid probate court if it has a properly designed beneficiary, it is my experience that a lot of people fail to keep their beneficiary updated.
You may have your parents as beneficiaries or your spouse, but then one of your parents may pass away or you get divorced and your life insurance policy has no contingent beneficiary. At that point your life insurance policy will needs to get probated in order to receive the proceeds. However, if you create a life insurance trust, the trust if drafted properly, will have contingent beneficiaries, and may have multi-generational provisions.
Meaning that your child can be the beneficiary of the trust, but if your child passes away, then his or her interest will pass to your grandchildren. The last major benefit that a life insurance policy offers for estate planning purposes is liquidity.
If you a property or a business, it may be months before your beneficiaries are able to either sell the asset or receive benefits from it. Having the life insurance policy allows your beneficiaries to immediately start ripping the benefits of the proceeds. Whether you choose to create a revocable life insurance trust or an irrevocable life insurance trust, using trusts to own and benefit from the life insurance is a valuable choice. Our deep familiarity with the nuances of insurance policy language and knowledge of common law allows us to provide our clients with exceptional, insightful, and timely advice.
Contact us at or reach us online to talk today. At HMC Lawyers , we offer strategic legal advice. Our breadth of practice experience allows us to promptly handle almost every litigation-related legal issue that may arise, and anticipate potential roadblocks that may delay its resolution. To make an appointment with a member of our team, contact us online or call For articling student inquiries please contact Sean Jeffers at Please leave this field empty.
Please provide us with as much detail as you can about your case. A lawyer from HMC Lawyers will be in touch as soon as possible. The insurance form stated You must make your beneficiary designation revocable or irrevocable by checking one of the circles below.
Competing claims CF died on April 2, The owner's right to name an irrevocable beneficiary may depend on whether the policy and the particular insurance company permit such a designation.
Here's some information on how they differ. A revocable beneficiary is a more flexible option. It allows the policy owner to change the beneficiary on their policy without restriction.
To make a change, the policy owner simply submits the request to the insurance company, and there's no need to notify or ask the current beneficiaries before proceeding. With an irrevocable beneficiary, the policy owner cannot change the beneficiary without written permission from the current beneficiary. The beneficiary can choose to allow the change, but there's typically no requirement to do so.
Therefore, it might be wise to view this as a permanent arrangement. Understanding life insurance options can help enable you to get the right coverage for your needs. So, why might you choose a revocable beneficiary or an irrevocable beneficiary? A revocable beneficiary is a simpler option for the policy owner. You keep full control over the policy, so it's easier to change your beneficiary as life changes.
For example, you might buy life insurance when you're young, healthy and single, naming your sibling as the beneficiary. If you marry and have children later in life, you might want to update the beneficiary on your policy. Or, if you decide that it's best to leave those assets to a trust, you can likely do that, too.
For some people, an irrevocable beneficiary may be a better option. For example, say you were married and got divorced. If the divorce agreement said your ex-spouse must contribute to your child's expenses and buy life insurance in case of early death, you might want to be named as an irrevocable beneficiary. Doing so could prevent your ex-spouse from removing your name and switching the beneficiary to somebody else.
On the other hand, there may be risks associated with naming an irrevocable beneficiary. If, for some reason, the beneficiary needs to change, you could be locked in and unable to determine who gets the death benefit of your policy.
When you get life insurance, considering the type of beneficiary that's right for your situation is important.
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