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Using a life insurance policy and a trust in estate planning

| Sep 13, 2019 | Estate Planning |

Some people in Wilkes-Barre and Philadelphia who are creating an estate plan might want to consider using a life insurance policy or a trust as part of that plan. There are a number of advantages of using the two in combination. This would involve setting up the trust as the beneficiary of the life insurance policy.

The estate tax deduction is high enough that few people need to use this combination to save on taxes, but there are other benefits. Cash from a life insurance policy can be used to fund a trust in need of money. Trusts have administration expenses, and an influx of money from a life insurance policy can help with those costs. Trusts also offer more flexibility when it comes to naming additional beneficiaries in case the main beneficiary does not live long enough to inherit. A trust allows a person to specify when and how those benefits will be distributed.

This is also the case with regular beneficiaries. If a beneficiary is likely to be irresponsible with money, the trust can be set up so that distributions only happen according to the creator’s instructions. If the beneficiary owes money to creditors and receives the life insurance payment directly, it could be seized by creditors, but in a trust, it will be safe.

There are a number of other factors in estate planning that people should consider. For example, a medical power of attorney can appoint someone to make health care decisions on a person’s behalf if they are incapacitated. A financial power of attorney can appoint someone to handle a person’s finances although some people may use a trust for this instead. A trust can be the main estate planning vehicle, with what is called a “pour-over will” created to move any remaining assets into the trust on a person’s death.