The particulars of navigating life insurance policies can seem daunting to the average person. When you purchase a policy, you’ll need to name a beneficiary — but that beneficiary doesn’t necessarily need to be a person.
Should you name your life insurance trust as a beneficiary? At Medical Profiles, Inc., we assist clients in making informed decisions when qualifying for and choosing a policy. Although we specialize in providing paramedical exams, we provided some information about this subject below.
Understanding Life Insurance Policies and Trusts
Life insurance policies and trusts can both play key roles in your estate plan. Life insurance policies provide a death benefit after the policyholder passes. The policyholder ideally bequeaths that benefit to another individual.
As a policyholder, you might allow a single beneficiary to obtain the entire death benefit after your passing. That beneficiary may be a person or organization that can use the benefit as they see fit at the time of your passing. In some circumstances, you may want to select a beneficiary who is a legal, competent adult or organization capable of managing their finances.
Your beneficiary, however, doesn’t necessarily have to be a person. You could name an organization, charity, or even a trust as the beneficiary. This would mean that the life insurance proceeds would go to that organization or fund after your passing.
A trust, much like a will, is a way to transfer ownership of assets to certain individuals. The trust will name one person — a trustee — to take care of the trust assets until they can be passed on to the correct individuals. If your life insurance benefits are put into a trust, then they could be passed to any beneficiaries mentioned in the trust.
Why Name a Life Insurance Trust as a Beneficiary?
Naming a trust as a beneficiary can sometimes seem superfluous. After all, your life insurance policy already requires you to name a beneficiary; why add an extra step and potentially make the situation more complicated?
In reality, there are several circumstances where naming a trust as a beneficiary can be beneficial. For example, say that you have minor children you want to provide for after your passing. According to the law, any minor children cannot inherit funds directly from your estate, which could leave them struggling. Naming a trust as a beneficiary can help you get around this problem; your trust would obtain any life insurance benefits, which would then be managed by a trustee until your children could access them. This way, you could make sure your children continue to be provided for.
Having young children isn’t the only reason to name a trust as a beneficiary. For example, you may want to make sure that certain things are done with the funds; a trustee can oversee distribution to make sure your wishes are upheld.
That said, naming a trust as a beneficiary isn’t beneficial for everyone. It can be helpful to consider your situation and current estate plan before making any final decisions.
Make Medical Profiles, Inc. the First Step Toward Forging Your Legacy
Naming a life insurance trust as a beneficiary is possible and can be beneficial under certain circumstances. Before doing so, however, you have to take the first steps in obtaining a profitable life insurance policy. A paramedical exam is among those steps. Medical Profiles, Inc. simplifies the process by offering mobile exams. We bring the exam to you — including all the equipment and tools needed to complete the exam. Call 832-251-3926 to schedule your exam today.
