Life insurance is just one way to fund a trust. They can also be financed with cash, stock investments, business interests, real estate, and even personal assets, such as works of art or other valuable collectibles. The revocable trust can be used to own life insurance or be the beneficiary of life insurance. The benefit of the revocable trust that holds life insurance is that, if you become incapacitated, your successor trustee can continue to administer the life insurance policy on your behalf.
When establishing an ILIT, the grantor can place a life insurance policy within the trust. This means that the trust is the owner of the policy, not the grantor. It may be a new policy or an existing policy, but some additional tax challenges may arise for existing policies with a large cash value. The ILIT solves that problem by making the ILIT the owner of the life insurance policy and the beneficiary of the policy.
This may be a term life insurance policy, but it's more likely to be a permanent policy, like universal life insurance. With a joint life insurance policy, there is still a benefit to placing the policy in trust, especially if you are not legally married or in a civil union. If you already have a life insurance policy and decide to create a trust, you can transfer ownership of the policy to the trust. The descriptions of the financial products contained in the Learning Center articles are not intended to represent those offered by Protective Life or its subsidiaries.
In any case, you'll want the revocable trust to be the beneficiary of life insurance so that the income from the death benefit is distributed to your successor trustee so that the funds are managed in accordance with your trust. So, if the life insurance policy doesn't affect wealth tax or the legalization of inheritance if left out of the trust, why should you make the trust the beneficiary of a life insurance policy? With a revocable trust, you can have a lot of flexibility and control, but the value of the life insurance death benefit will be included in your gross assets for wealth tax purposes. If you're choosing a new life insurance policy when setting up an ILIT, you're in a great position to choose a policy that is ideal for your personal desires and the needs of your family. For most people who want to leave a legacy, the two most important assets are life insurance and a home.
If the life insurance trust is used, when you die, the trust will be the beneficiary and the profits can be managed for the child's benefit without any court intervention. Trusts are usually funded by a life insurance policy, which provides the assets that will be used after the death of the insured, for the benefit of his family or other heirs. Trust and life insurance are one way to support minor children, especially since younger families often don't have enough money or other assets to do so. If life insurance profits are distributed directly to your beneficiaries, you will have no control over how they spend the funds.