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Living Trusts and Life Insurance [Why They Are a Winning Combination]

Living Trusts and Life Insurance

It has been our experience here at I&E that most folks are aware that Living Trusts are a powerful estate planning tool.  But the problem is that for most, this may be as far as they’ve gotten towards actually moving forward and beginning the process of creating one.

Which is why….

One of the first things we like to ask any new client calling in that is interested in creating a Living Trust or purchasing a life insurance policy is…

 “How long have you been considering doing this?”

We do this so…

That we can get a better idea of just how important this decision is for our client, but also to point out to a lot of folks who are considering acquiring one or both of these financial instruments have probably been thinking about it…

“…for quite awhile!”

After all…

It’s not like having a Living Trust or owning a life insurance policy is really a controversial decision.  In fact, you’d probably have a difficult time finding a financial adviser or a spouse tell you that it’s not a good idea.

This is why…

We here at I&E chose to write this brief article about the importance of having both a Living Trust and a quality life insurance policy that meets your needs so that your family will be completely covered when you die, even if it happens prematurely.

Additionally…

Because we know that making these “types” of purchases isn’t as much fun as say, purchasing a new car, we also like to stress how, with I&E’s help, we can make setting up these financial tools for you and your family as painless as possible.

But…

Before we get into all of that, let’s first briefly review WHY someone should seriously consider creating a Living Trust for their family and WHY purchasing life insurance policy is often the easiest way for an individual to create an immediate inheritable estate in the event that you pass away too soon!

You see…

There are a few simple things that you should know about Living Trusts.

First and foremost, a living trust is a special document that takes your estate out of the hands of the public court system and it back into the hands of your loved ones and other appointees.

A Living Trust transfers your power to your trustee. This transfer of power results in a few key benefits as follows:  

  1. Privacy
  2. Control
  3. Asset Protection

Privacy

You see the probate court system in the U.S. is a public process, and this means that anyone can look up all kinds of information about cases that are filed in the probate court system.

For example, if you want to know what assets are in an estate, you could go in and pull the inventory of assets. Likewise, if you want to find out who the executor is, you could obtain a copy of the last will and testament.

In stark contrast, a Living Trust allows for a private family process for distributing assets. Depending upon the jurisdiction, very little public filing may be required. Even if the will or other documents are required to be filed, there is little else that needs to be publicly disclosed if all assets were properly titled in the trust.

Control

The probate court system, is control by the state laws and frankly, the busy appointed judges who tend to have little personal interest in the outcome of any court proceeding except as it may impact their reputation.

On the other hand, because a Living Trust is a contract, it allows you to control the distribution of the assets in advance by spelling out what you’d like to happen right in the Living Trust agreement.

Yet it gets better…

Asset Protection

The probate process is an open door to creditors of all types to come a knocking.  In fact, notices to creditors are required to be sent out by law and it is a forum to settle all debts, ideally first, from the sale of the estate assets. This process can be a good one for eliminating creditor claims; however, it isn’t always a great forum to negotiate down creditor payments.

On the other hand, the Successor Trustee of a Living Trust is responsible for prudently handling the trust assets and is ideally positioned to negotiate with creditors, having been given broad discretion by the trust agreement to do so.

How Life Insurance and Living Trusts Work Together

If you have life insurance for any number of reasons like

  1. Estate Planning to Support Dependents
  2. Estate Tax Planning
  3. Business Continuity Succession Planning

…your living trust can safeguard the death benefit proceeds.

More specifically, rather than just cutting checks to beneficiary, your living trust can be the recipient of life insurance death benefit proceeds.

This allows the Living Trust to not only direct how these proceeds are handled, but also provides a shield of asset protection benefits to protect the assets from creditor claims.

The options for leveraging life insurance proceeds through the power of a Living Trust are as limitless as the drafting of the trust itself and can cover things like:

  1. Preserving educational aspirations for future generations
  2. Protecting against drug abuse, divorce and creditor attacks
  3. Preserving a family business or enshrining family traditions and values.

A living trust is a powerful tool to preserve a family legacy and life insurance is often the electricity that powers this tool, at least in part.

So…

Now the real question is, are you ready to take the next step and see what it would take to actually create a Living Trust or apply for a life insurance policy?

If so…

Just give us a call we’d be more than happy to answer any questions you may have as well as help you quit procrastinating!

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