Parents creating estate plans to protect their children, those responsible for people with special needs and a variety of others may want to establish trusts instead of relying solely on wills. Trusts have protection from creditor lawsuits and create more structure for the use of an inheritance.
However, they also require careful planning and adequate initial funding. Many people who might benefit from establishing a trust do not have enough liquid capital on hand to fully fund the trust at the time of its creation.
In some cases, life insurance proceeds could play a role in funding a trust.
A trust can be the beneficiary of the policy
The person paying for life insurance files beneficiary designation paperwork with the insurance company. They choose who receives the funds from the insurance policy after their passing. Most people select individuals as their life insurance beneficiaries.
However, it is also possible to name a trust as the beneficiary of a policy. The policyholder can provide instructions regarding the use of those funds after the trust receives the payout from the policy.
They could instruct the trustee to preserve those resources until minor beneficiaries become legal adults. They might limit the use of the trust’s resources for specific types of expenses, such as educational or medical costs.
In scenarios where people cannot transfer their personal holdings to properly fund a trust at the time of its creation, making appropriate arrangements with an insurance company might be an appropriate solution. Learning more about how to fund and establish a trust can help people provide for their loved ones and establish a robust personal legacy after they pass.