Wills and Estate Planning

Planning Your Estate with Life Insurance Trust(s)

Life insurance trusts are created to reduce the size of your taxable estate and to name someone as trustee. This ensures your heirs receive the cash rather than it being spent to pay estate taxes.

The Benefits of Life Insurance Trust(s) in Estate Planning

Most people who establish life insurance trusts do so because they are concerned that the combination of both their estate’s assets and their type of life insurance benefits will generate a substantial increase in their estate taxes when they die. So instead of their heirs pocketing the cash, they’re fearful that estate taxes could consume the majority of the inheritance money.

If you have a large estate, as well as a substantial life insurance policy, you may be wondering how much life insurance you need and what to consider when making sure that the benefits of your policy don’t pay out into your taxable estate – increasing the amount of taxable income. One way to do that is with a life insurance trust.

If you own a life insurance policy on your own life and are worried about estate taxes, you may be able to use a life insurance trust to reduce the size of your taxable estate by creating an irrevocable living trust and naming someone else as the trustee. Once established, you can transfer your life insurance policy into the trust, making the trust the new owner of the policy. According to the website NOLO.com, doing this means you’ll no longer have control over the policy, but through the terms of the trust, you can determine who will have control, how premiums are paid, who will benefit from the trust, and how payments should be made to the beneficiary(s). It’s important to note that the trust must be in place for at least three years and the trust must be irrevocable.

To set up a life insurance trust, it’s in your best interest to consult with an estate planning attorney who is knowledgeable about your state’s laws, and who can better advise you of your options.

For more information on using life insurance in estate planning, visit the Protective Learning Center.


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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax‐related decisions. For information about Protective Life and its products and services, visit www.protective.com.

Life Insurance Trust(s)

Considering a life insurance trust as part of your estate plan may be able to help you reduce the amount of estate taxes after you die. If you have a large estate and a substantial life insurance policy, having a life insurance trust may be able to help. It's important to ensure that your assets will be properly received by their rightful heir, without incurring additional costs after you're gone. Taking the right steps outlined here will ensure that you're on the right track to protecting what's yours. For more information, visit our learning center.

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