Should A Life Policy Be In A Revocable Trust?
If love is blind, and if marriage is an institution, and if love and marriage go together… then, is marriage an institution for the blind? Maybe things don’t always go together, but many times they do.
A revocable trust is a common management device that holds assets for the creator/grantor who has freedom to add or subtract property as he or she pleases and which includes instructions to distribute assets at death. It is his or her alter-ego for both income and estate tax purposes, with the same results as if all were owned directly.
So, do a revocable trust and a life policy go together?
Consider the pluses and minuses of a trust-owned contract:
- Cost – Creating the trust is an additional expense beyond the fees for the usual last will & testament, power-of-attorney, and health directive.
- Creditors – Unlike with an irrevocable trust, assets are not protected from claims against the grantor.
- Court – Death benefits are not subject to probate, but this may not be a compelling reason.Beneficiary designations (other than to the estate of the insured) serve to avoid probate court anyway.
- Continuity of Control – If an individual owner of a policy is not competent, or cannot be found, management of the policy is onerous. The trust can re-direct authority.
- Contingent Beneficiaries – This is the biggest advantage.Primary policy beneficiaries are usually simple (e.g., 100% to my spouse).Beyond that things can get complicated quickly (e.g., to my children).Must a child survive?Are there children of more than one marriage?Will distribution be equal among all?Is there a desire to manage the proceeds for a time prior to complete distribution?All these concerns are much better accommodated in a trust document than in the beneficiary box on a policy application.
If you have questions about a client policy and trust planning, or any other case planning issues, contact Tom Virkler, JD – Director of Advanced Markets, at 706-614-3796 or tom@cpsadvancedmarkets.com.