Many people have a variety of assets in their estates and, for a lot of those folks, life insurance is among them. Your goals for your life insurance likely involve making life easier for one or more of your loved ones. What you likely don't want to do is have your life insurance payout trigger then need for a probate administration or go directly and in full to a beneficiary who cannot, or isn't ready, handle it. Your living trust can be an integral part in avoiding these problems, either by using it as a primary, or an alternate, beneficiary of your life insurance. Your estate planning attorney can help you explore how these techniques can work for you.
Once you have decided to be pro-active and create your estate plan, and once you've decided that your estate plan should include a revocable living trust, you're still not "finished" even after you signed your documents. You, of course, have to complete the process of funding your living trust. In many situations, funding an asset means transferring ownership of it from you, as an individual, to your trust.
For some assets, though, you may not want to transfer its ownership. Life insurance policies already avoid probate even without being funded into a living trust. The death beneficiary designation on the policy itself accomplishes this. However, what if you find yourself in a circumstance where the person you want to name as the beneficiary on your life insurance is also someone who cannot (or you believe should not) get that whole insurance payout all at once?
For example, what if you want to name your under-18 child or grandchild as your life insurance beneficiary? This person, as a minor, cannot, by law, get these benefits directly. Alternately, what if that child or grandchild whom you want to receive your life insurance payout after you die has just turned 18 and is very inexperienced in handling, and dealing with, large sums of money? Or, what if they are an adult but have a history of making bad investments, spending lavishly or being too trusting of other when it comes to money?
In these situations, having a trust in your estate plan can be a big help! If you have a trust set up, then you can, instead of individually naming the person whom you ultimately want to receive your life insurance proceeds, name your trust as the beneficiary of your policy. Then, when you die, your proceeds will go into your trust and the successor trustee whom you personally selected when you created your trust can manage those funds for the benefit of that person.
This situation isn't the only one where your trust can help you when it comes to life insurance. If you have a living trust, chances are that one of your planning goals is avoiding probate. Well, if you have an insurance policy and, when you die, there are no available beneficiaries to take the payout, then that money goes into… your probate estate and has to go through probate administration before it can distributed!
How can this happen? It can happen if a policy has too few beneficiaries (such as listing only one beneficiary) and that beneficiary dies before you do. Sometimes, though, a policy may have numerous beneficiaries but, through tragedy or the randomness of life and death, all of the beneficiaries may have died first. Other times, a beneficiary may have chosen to forfeit his/her rights to receive policy proceeds. Regardless of the reasons, there is a way to make sure your insurance proceeds don't eventually require probate. You can install this protection by naming your living trust as the beneficiary of your policy. You may choose to name your trust as the policy's primary beneficiary and then put your instructions on distributing these policy proceeds in your living trust, or you can simply name your trust as an alternate beneficiary, after all of your preferred individual beneficiaries, as a "failsafe" against having your policy proceeds go into your probate estate.