How to Establish A Trust to Distribute Life Insurance Proceeds
Life insurance provides an important safety net for many families. If you are young, raising a family and going about your life, you may not think of this type of coverage. However, what if something were to happen to you? Life insurance coverage could help to provide your loved ones with the support they need to carry on with their day-to-day lives. You may wish to manage these funds carefully, which means it’s important to know how to establish a trust to distribute life insurance proceeds.
What Does A Life Insurance Policy Do After Death?
After an individual with a life insurance policy dies, the policy goes into effect. In a matter of weeks, the policy sends a payment to the listed beneficiary. This is a person or trust that you decide on. If you leave it explicitly to a person, that person is able to use the funds for any need he or she has.
In this scenario, you have very little control over how that money is to be spent after your passing. You cannot require your loved one to pay for your home’s mortgage. You cannot require the funds to go to pay for a disabled child. However, if you list the trust as the beneficiary, you can maintain more control.
How Does A Trust Work?
If you want more control over what happens to your money after you’re gone, you should work with a licensed financial planner to establish a trust. This is a legally binding document. The trust acts much like a separate person. When you die, the proceeds from the policy go directly into the trust. You establish the trust with specific guidelines. This includes naming someone to manage it and setting guidelines for the use of the funds within it. You gain significant control over those funds and can make key decisions about their use.
Once in place, you can elect to create the life insurance policy as you would like to. Be sure to inform your loved ones of your plans, and speak to the person you name to manage the trust so they understand your goals.
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