What is the best strategy for handling life insurance proceeds for your heirs and beneficiaries. It is often important to consider an irrevocable trust for life insurance proceeds to prevent your designated beneficiaries from misusing the funds you have planned and worked so hard to provide. An irrevocable trust is usually an integral part of a well conceived estate plan. The “irrevocable” simply means once it is put in place you cannot pull the asset(s) back. Irrevocable trusts also provide some important tax protections when necessary (such as in a QTIP or a classic “A-B” revocable trust).
Life insurance is an excellent way to provide for your loved ones after your passing. The challenge with the classic life insurance scenario is your loved one(s) receive a lump sum of money, often at an emotional and unsettled time in their own life. In other cases you realize that a beneficiary or heir may not have effective money management skills or may be facing alcohol or drug addictions. The trust allows you to leave specific instructions, and disburse funding more appropriately based upon your own intentions and what you believe is best for each recipient. It may be helpful to encourage one heir to “complete college” while another may receive support for artistic development or to pay for their own children’s education (that of your grandchildren).
There are taxation issues to be reviewed and the experienced estate planning and tax attorneys at Allen Barron can guide you through the limitations associated with your intentions, and potential strategies to work within the law and US and California tax code to reduce or eliminate any associated taxes.
There are a few potential drawbacks to an irrevocable trust. You may not be able to make changes to beneficiaries or the terms of the trust instructions. It is best to consider every aspect of this decision, and the skilled attorneys and tax specialists at Allen Barron will help to understand your unique circumstances as well as your intentions and craft an estate plan to support your goals. You may wish to consider an irrevocable trust for life insurance to help beneficiaries to ease into the wonderful abundance you have provided.