Navigating Life insurance in a Living Trust: Advice from Christopher Yugo, Times Columnist

In the world of estate planning, one common question that arises is how to handle Life insurance within a living trust. Should the trust be named as the beneficiary of the policy? According to estate planning expert Christopher W. Yugo, the answer to this question is not always straightforward and depends on various factors.

Yugo explains that the terms of the trust itself can play a significant role in determining whether the trust should receive the Life insurance proceeds. Additionally, the post mortem beneficiaries named in the trust can also impact who ultimately receives the benefits. The type of Life insurance policy in question is another important consideration.

In general, Yugo suggests that the trust should receive the Life insurance proceeds. In an estate plan that includes a trust, the trust is often the central component through which the settlors aim to transfer their wealth to their loved ones efficiently. In this case, it may make sense for the trust to not only receive the Life insurance benefits but also to own the policy if possible.

Furthermore, if the trust establishes sub-trusts after the settlor’s death, the Life insurance proceeds could be crucial to the overall plan. For example, if the settlor wishes to create a minor’s trust for a young grandchild, the Life insurance benefits may be needed to fund that trust.

However, there are risks associated with naming a trust as the beneficiary of a Life insurance policy when it is not absolutely necessary. For instance, if the trust is simply a conduit trust meant to distribute assets to beneficiaries after the settlor’s passing, it may be more practical to name the trust’s beneficiaries directly on the policy.

Another potential concern is that naming a trust as the beneficiary could make the proceeds vulnerable to creditors. If the Life insurance benefits are paid directly to a beneficiary, they are typically protected from creditors. On the other hand, if the proceeds flow into a trust that could be used to pay off the settlor’s debts, creditors may have a claim to those funds.

Ultimately, Yugo advises individuals to consult with their attorney to determine the best course of action regarding Life insurance and trusts in their estate plan. While it is generally acceptable for a trust to own the Life insurance policy and receive the proceeds, there are potential risks involved that should be carefully considered.

In conclusion, when it comes to handling Life insurance in a living trust, seeking professional guidance from an attorney is crucial. By discussing your specific circumstances and goals with a legal expert, you can ensure that your estate plan is structured in a way that aligns with your wishes and protects your assets for future generations.