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Wealth Management

Why A Life Insurance Policy Should be Owned in a Trust

  • Oppenheimer & Co. Inc.
  • September 22, 2020

One of the most frequently utilized strategies in estate planning is the use of trusts. Trusts were once associated with high net worth individuals as a way to pass money to heirs or charitable organizations, but they are fast becoming a popular tool for everyone. The main reason people create a trust is to have control over who receives their assets. Trusts can offer other advantages such as keeping your estate private, protecting your legacy and avoiding probate.

people reviewing financial statements
Reasons to Consider a Trust
  • Tax planning purposes 
  • Concerns of a spendthrift beneficiary
    - Spendthrift Beneficiary: A beneficiary who spends money recklessly
  • To avoid probate 
  • To plan for an underage or special needs individual 
  • Charitable planning
  • For Privacy
Three Ways to Create a Trust with an Attorney

1. Drafted Trust: Living trust

2. Sub-Trust: Springs from an existing trust

3. Testamentary Trust: Contained within a last will and testament

Probate: The legal process of distributing and settling an estate according to the law. Any interested party can see what you owned and who will receive your assets

Irrevocable Life Insurance Trust (ILIT):

A type of trust set up to own a life insurance policy. Ownership can be transferred to the ILIT after it has been formed or the trust can purchase the policy directly.  An ILIT cannot be rescinded, amended or changed in any way once it is created.

How does it work?

The trust is typically designated as the primary beneficiary. When the insured dies, the death benefit is deposited into the ILIT. It is then held in the trust for the benefit of the individuals named in the trust document to receive the money. A trustee acts as a supervisor for the trust and distributes the assets in accordance with the terms of the trust set by the grantor.

Benefits:

  • The proceeds from the death benefit will not be part of the insured gross estate, therefore not subject to state and federal estate taxes.
  • Avoids gift tax consequences, if drafted properly. 
  • The trustee can have discretionary powers to make distributions and control when beneficiaries receive proceeds of the policy.

Contact your Oppenheimer Financial Professional to assist you in creating a comprehensive estate plan to help you feel more confident about the future and that your loved ones will be taken care of.

Disclosure

© 2020 Oppenheimer & Co. Inc. Transacts Business on All Principal Exchanges and Member SIPC. All rights reserved.

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