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January 29, 2021

Setting Up A Life Insurance Trust

Setting Up A Life Insurance Trust

Smiling family 

As long as your children are dependent on you, they rely on you to provide for them financially. It’s something that you are proud to do, but it’s an unfortunate fact that you cannot predict tomorrow. If something were to happen to you, what would your children do? How can you provide for them in the event of your death? That’s a tough question that all parents need to ask themselves. 

One of your potential solutions to this question is to invest in life insurance. It will provide a financial settlement for young children, but you must take steps to see that the money is used properly. Leaving life insurance to minors is possible, but to manage the money appropriately, you usually must place it in a trust fund. This is how it works. 

How Life Insurance Trusts Work 

When you buy life insurance, you primarily invest in a death benefit. When you die, a designated beneficiary will be able to make a claim against the policy, and they will receive the death benefit as compensation. They can use that money to pay final expenses, cover funeral costs or just stabilize their own income after your loss. However, a death benefit without strings attached can be used solely at the discretion of the beneficiary. 

Still, some people have specific goals in mind for a death benefit. In your case, you might want your benefit to support your children if you die while they are minors. However, because they are minors, you cannot name the children as your beneficiaries. Instead, you can name a trust fund as your beneficiary, which will serve as the money’s guardian and will contain directions on how the money is to be used to the child’s advantage. 

Setting Up The Trust 

If you are interested in establishing a trust for your life insurance policy, then you will need to work with both your estate planner and your life insurance agent. 

When you set up a trust fund, you must name a trustee. This is an adult who will be tasked with overseeing the trust and distributing the money according to the rules outlined by the trust. Because the trustee is legally bound to follow these rules, they will make sure the money goes to the children in the ways that you intended for it. You can often stipulate that your children receive control of funds in the trust when they reach a mature age.  

As you set up your life insurance, let our committed agents assist you in making the right decisions about death benefits, beneficiaries and trust options. We’ll guide you through the process of putting together optimized coverage that will always go where you want it to go.

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