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Do You Need A Life Insurance Trust?


“I trust my wife completely,” he said to me. “It’s the guy after me I’m worried about.”

“I’ve decided to buy a pretty large life insurance policy on myself so that if something happens to me my wife can keep raising the kids,” he explained his reasoning to me…


“She would have to forgo much of her career to raise our kids alone, so it wouldn’t be fair for her to have to go back to work later in life just because I died early.”

“So, I’m good with all that,” he said, “but I am not interested in some dude coming along after me and sweet-talking my wife out of the money I leave for my her and my kids.”

“How do I keep that from happening?”

When someone takes out a life insurance policy on themselves, they must name a beneficiary. That is the person (or entity) that would receive the life insurance proceeds in the event of your death during the time the policy is in force.

So, imagine you took out a $1,000,000 life insurance policy on yourself. Suppose the day after you pick up the policy and pay for it (thereby putting the policy “in force”), you die in a tragic accident.

Soon after, your beneficiary (now your widow or widower) contacts the life insurance company, notifying them of your demise. What do you want to happen?

They could send her (or him) a check for $1,000,000. She would then have a lot of decisions to make. Does she pay off the home mortgage? Put the money in the bank? Take a vacation?

If that doesn’t sound like a situation that would end well, don’t worry. Delivering a lump sum payment to your grieving spouse is not your only option.

When you buy a life insurance policy, you can designate any one of several options of what to do with the money in the event of your death, the lump sum payout being just one option.

The others include paying your beneficiary interest only (yipes, that would be pretty low these days).

Or, you could pay out the benefits over a specific number of years. For example, you could pay out $100,000 per year for ten years.

Another option for you to consider is a life insurance trust. This trust could actually be written into your will, so it would not even come into existence unless you died. You would then name the trust as beneficiary of your life insurance policy. In the event of your death, assuming you die while the policy is in force, the death benefits would pay to the trust.

The whole idea of the trust would be for it to pay your surviving spouse a regular income (sufficient to live on), while keeping the principle intact. You can have the trust written in such a way as to protect those you love and keep those with less than virtuous motives from getting their hands on money meant for your family.

Talk to an experienced agent about the policy and to an attorney experienced in estate planning about the trust in your will.

Whatever you do…don’t leave it to chance.

Byron is a Certified Financial Planner and Managing Director of the Planning Group at Argent Advisors, Inc.
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