Primary Beneficiary for Life Insurance: person or trust?

[correns]

What is the name of your state (only U.S. law)? MO

My husband & I are in the process of doing our separate living trusts wherein each of us becomes the successive trustee of each other's trust, whose main beneficiary is our child.

I am a bit confused with regards to our life insurance policies. The primary beneficiary right now is each other (spouse) but our lawyer advised us to make each of our trust as the primary beneficiary. I don't see the need for this....when my husband dies, I will receive the proceeds outright and then I can put those proceeds in my own trust for the benefit of our child. Same goes for my husband. Should we just have the LI beneficiary designation to remain as is, and then add our respective trusts as contingent beneficiary? Or should we do as our lawyer suggests?

Thank you.

What is the name of your state (only U.S. law)? MO

 

[curb1]

The revocable trust is generally named as the beneficiary of life insurance proceeds.

 

[TrustUser]

hi curb,

have you changed your mind about this ?

when we last had this discussion on this site, i think i was the only one who advocated for this.

 

[curb1]

I have not previously taken a position one way, or the other, on this issue on this forum.

 

[FlyingRon]

I didn't recommend it and I still don't. Unless you've got some bizarre situation other than you want PERSON to have the money from the insurance, name them rather than the trust.

 

[correns]

I didn't recommend it and I still don't. Unless you've got some bizarre situation other than you want PERSON to have the money from the insurance, name them rather than the trust.

Could you give me a reason(s) why you don't recommend it?

Thanks.

 

[TrustUser]

my reason for liking it is that trusts dont die, like people do.

a trust is specifically designed to distribute one's assets. it has instructions to deal with how to do this, including when beneficiaries die.

when you want to change the distribution, you can do so through one document.

i have almost my stuff titled in trust, even my checking account. that which is not titled in trust, has a trust as its beneficiary. i dont have life insurance, but i do have a pension account.

 

[correns]

my reason for liking it is that trusts dont die, like people do.

a trust is specifically designed to distribute one's assets. it has instructions to deal with how to do this, including when beneficiaries die.

when you want to change the distribution, you can do so through one document.

i have almost my stuff titled in trust, even my checking account. that which is not titled in trust, has a trust as its beneficiary. i dont have life insurance, but i do have a pension account.

Thank you for giving me your perspectives, TrustUser. It's something for us to think about.

 

[curb1]

correns,

You can google the question for more information. I couldn't find any recommendations to not have the trust listed as the beneficiary of life insurance proceeds.

 

[george2010]

The primary beneficiary right now is each other (spouse) but our lawyer advised us to make each of our trust as the primary beneficiary. I don't see the need for this....when my husband dies, I will receive the proceeds outright and then I can put those proceeds in my own trust for the benefit of our child. Same goes for my husband. Should we just have the LI beneficiary designation to remain as is, and then add our respective trusts as contingent beneficiary? Or should we do as our lawyer suggests?

A key consideration that hasn't been mentioned so far in the thread is whether your total estate is likely to exceed estate tax exemptions... this is hard to answer given current flux in estate tax laws, but basically if your total estate, including the life insurance, is likely to be over $1,000,000, then you need to think about the way you setup the ownership and beneficiaries of your life insurance policy to minimize estate tax. Having your policies owned and payable to an irrevocable life insurance trust (ILIT) can avoid huge estate tax bills.

Another issue to consider is asset protection... if either you or a living trust is the beneficiary, the proceeds will have no protection from creditors. So suppose you have a car accident and a lawsuit awards someone millions of dollars -- without any protection, your life insurance proceeds could go straight into the wallet of the plaintiff. The best approach is the ILIT mentioned above, but an alternative with some of the benefits is to have the beneficiary of the life insurance be an irrevocable testamentary trust created by your will. That prevents the situation in which a lawsuit against the survivor can get the money from the life insurance proceeds. Of course, to get that protection, you have to give up a significant amount of access and control of the proceeds, which, depending on the surviving spouse's overall financial situation may or may not create hardship.

 

[candg918]

If the life insurance proceeds are really meant to benefit a child, why should not a trust be created for the child to receive any death benefit from either parent?

 

[correns]

A key consideration that hasn't been mentioned so far in the thread is whether your total estate is likely to exceed estate tax exemptions... this is hard to answer given current flux in estate tax laws, but basically if your total estate, including the life insurance, is likely to be over $1,000,000, then you need to think about the way you setup the ownership and beneficiaries of your life insurance policy to minimize estate tax. Having your policies owned and payable to an irrevocable life insurance trust (ILIT) can avoid huge estate tax bills.

Another issue to consider is asset protection... if either you or a living trust is the beneficiary, the proceeds will have no protection from creditors. So suppose you have a car accident and a lawsuit awards someone millions of dollars -- without any protection, your life insurance proceeds could go straight into the wallet of the plaintiff. The best approach is the ILIT mentioned above, but an alternative with some of the benefits is to have the beneficiary of the life insurance be an irrevocable testamentary trust created by your will. That prevents the situation in which a lawsuit against the survivor can get the money from the life insurance proceeds. Of course, to get that protection, you have to give up a significant amount of access and control of the proceeds, which, depending on the surviving spouse's overall financial situation may or may not create hardship.

Thanks for your insight george. We have been mulling about the irrevocable life insurance trust (BTW, I have also read your thread on this slightly similar topic). We'll think it over and maybe discuss it to our lawyer.

We will do some more reading re: testamentary trusts.