Many considerations go into estate-planning, some of the most important being how to provide for loved ones once you are no longer there. Setting up a revocable or irrevocable trust can provide people with more control over how assets will be distributed later on, and at the same time potentially avoid lengthy probate administration and taxes.
Once the basic estate management tools of a will and power of attorney are created, many people are exploring the benefits that a trust can provide. Beyond funding the trust with cash, stocks and bonds, however, it is possible to fund the trust through life insurance.
Although Florida is one of the friendlier states for trust administration since its adoption of and recent changes to the Florida Trust Code, it is important to discuss options with an experienced Tampa Bay area estate attorney for guidance on beneficiary designations and estate taxes.
Different types of trusts
A trust is a fiduciary arrangement, formalized in a document, which allows the grantor to permit the trustee to make decisions about distributions of funds that have been placed in the trust during the grantor’s lifetime, often on behalf of named beneficiaries.
The two most common kinds of trusts are revocable and irrevocable trusts. There are advantages to each, depending on the priorities of the estate planner, that can provide more flexibility of access or offer coverage from estate and income taxes.
Funding a trust with life insurance
When parents fund a trust with life insurance, they usually name each other as primary beneficiaries, with the trust named as the contingent beneficiary. This has advantages to just naming minor children on the policy, because they would not be able to access the funds until the age of majority.
When parents fund the trust in this way, if they die unexpectedly then the funds become immediately liquid, tax-free and available for the trustee to access on behalf of the minor children. It is very important, however, to make sure that the named beneficiaries are clear in the trust.
One of the least expensive policies is term life insurance. For parents who want to provide for their young children or are just beginning to examine estate planning options, this is an affordable way to plan a financial future. Although they have not accumulated substantial assets, they can purchase a policy that will last until the children are adults and out of college. And guaranteed universal life insurance offers a long period of funding.
Although there are many options to consider in estate planning, it is important to find one that suite your needs and circumstances.