In a recent blog post, I had discussed the benefits of using life insurance in estate planning, such as adding liquidity to an estate that may owe estate taxes, effectively paying the estate’s tax bill for pennies on the dollar.
I asked C. Tucker Cheadle from Cheadle Law to comment on my post, and he had some very interesting input… so good, in fact, that I’m going to use his response here as somewhat of a guest post. Enjoy!
Benefits of Life Insurance Held in Trust
Chris, in addition to providing liquidity for estate taxes, life insurance held in an irrevocable trust is generally exempt from the judgment of creditors, spouses of beneficiaries and is held and distributed in accord with the trust which can be specially drafted for the needs of the family.
I am a big believer in life insurance.
Life Insurance Trusts & Asset Protection
A little know aspect of life insurance trusts is their ability to assist in lawful asset protection. With a properly drafted life insurance trust, the policy proceeds are generally held for the benefit of the surviving spouse and then any children or grandchildren.
Protecting Your Estate from Transferring Out of the Family
Often the surviving spouse remarries and upon remarriage the policy proceeds, if not held in a life insurance trust, are commingled with the new spouse and then often distributed to the new spouse who then distributes them to his or her children and not the children of the decedent.
Protecting Your Estate from Creditors
Another potential risk without a life insurance trust is that claims from creditors, partners or shareholders may be asserted following a death simply because the existence of life insurance becomes known. At that time the decedent is unable to defend against claims and the family, unaware of the facts and now defenseless, is forced to settle or litigate.
But if a trust is present, for example in the case of creditors, their attempts to collect from the estate simply cannot be fulfilled, as the trustee is limited in how he or she can distribute funds. Since the trustee can only legally distribute trust proceeds as the trust instructs, this is the basis of how asset protection is accomplished with a life insurance trust.
Mr. Cheadle is a California attorney, and may be contacted at 949-553-1066 or at www.cheadlelaw.net .
Huntley Wealth and its representatives do not give legal or tax advice. Information contained on this page simply reflects our understanding of the tax rules and regulations in effect at the time of publication. Please consult your personal tax and/or legal advisor regarding estate tax law as it applies to you.*Huntley Wealth Insurance and its representatives do not give legal or tax advice. Please consult your own legal or tax adviser.