Do you have large family; children young and adult children from two marriages, aging parents and now grandchildren? Besides having substantial life insurance, which your ridiculous income has allowed you to maintain for monthly premiums on a 5 million dollar life insurance policy. Not only do you have a bigfamily but you only have one economically independent child that has graduated MIT and your remaining 5 children are all in high school or in child day care..
If you were to suddenly pass away without a proper mechanism for distributing your life insurance death benefit, you may be creating a family nuclear war soon after your untimely death. You have two have two “mothers of your children”; the ex-wife with whom you had 3 children, and your current wife who gave you triplets in your first year of marriage plus an older child from a previous marriage (that child already graduated from college, and lives independently in New York ). You are 55 and a successful business consultant, an independent sole proprietor—no bosses. You are skilful at planning everything in your life but you are absolutely lost about planning for your inevitable demise. You first step is to understand the functions of three estate preserving mechanisms: life insurance –will pass a tax free death benefit to your beneficiaries, a Will can legally transfer your assets such as your cars, art, house other items to designated heirs, a Trust Fund-in its various forms, but for this article we will focus on the Life Insurance Trust Fund can help distribute your life insurance death benefits to minor[ your teenage children from both families] via assigned trustee who will have provisions as to how much and when and for what to distribute funds to your children. Do you really want to leave your 13 year old daughter her $350,000 –her cut of your 5million dollar death benefit.
This amount may be detrimental as a lump sum for a young adult who has not come-of-age to plan their won lives. The money may blunt their ambition to go to college or become an independent adult. This is why a trust fund that has an assigned trustee that has provisions for that trustee to distribute the money according to concrete milestones—such as graduating high school, or finishing the first year of college, or turning a certain age . An additional benefits is that a trust fund can help protect your assets from estate taxes, also known in the insurance world as “death taxes” which you will incur when you transfer your financial assets to your heirs through traditional methods. Where can you begin your conversation about Life Insurance Trusts? You can either make an appointment with your life insurance agent or have a conversation with your wealth management director at your bank. Most large banks have a central branch in your city, their advisors are not readily available because they work out of two or three branch offices in your area. Make the phone calls, and set an appointment.
It’s easier than you think, I established my life insurance trust together with my life insurance agent and my banks wealth management advisor, aka-financial advisor, private client advisor etc. The fundamental design of my plan—and possibly your is this; My life insurance policy allows me to name beneficiaries namely my wife who will receive half and the other half is designated to an account number[ the account number of the trust fund at my bank]. My wife and my brother are trustees to the trust fund. The trust fund was established to insure that my children have a mechanism to receive money for college and graduate school anywhere in the world if I am not alive to pay for it. My wife will receive a hefty immediate lump sum from the life insurance for income replacement to raise our children , so that she doesn’t have to remarry[ although I couldn’t stop her if she remarried, and if she remarried, the new husband has no legal access to the money I have set aside in the trust fund for the kids]. If my wife were to receive all of the death benefits from my life insurance policy and we didn’t establish a Life Insurance Trust Fund, she could remarry after my death and then divorce —and the ex-husband could sue for her money, money that I left for her.
A Life Insurance Trust Fund would at least protect the money I set aside for my children’s wellbeing, unfortunately my wife and possibly yours if the scenario where to happen to you—would have struggle in court to protect her paid out death benefit from the ex-husband who had been sharing that death benefit income during the time of their brief marriage. Once again, A life Insurance Trust Fund can protect your spouse from this scenario and your underage heirs from not having funding for their education. All things considered, I hope this article inspired intriguing questions for your wealth advisor at your bank and your life insurance agent about how Life insurance and trusts can help preserve your precious legacy.