A trust is a way for an individual to structure their legacy, protect their assets or provide specific forms of support to loved ones. There are many different types of trusts that people can establish.
In scenarios where individuals want to provide support for vulnerable loved ones or enhance their legacy after their passing, funding a trust with as many resources as possible is often the best approach. Those who do not have enough capital or high-value assets to fully fund a trust at the time of its creation may need to come up with creative solutions to enhance the funding available. Life insurance policies can be an effective means of funding a trust.
The trust can be the policy beneficiary
Technically, an estate plan does not determine what happens with life insurance proceeds. Instead, the insurance company follows the instructions provided in beneficiary designation paperwork.
Most people select a specific individual as their beneficiary for a life insurance policy. However, the policyholder gets to choose whom they select as the beneficiary. So long as they file the appropriate paperwork with the insurance provider, they can designate a trust that they established as the beneficiary.
Life insurance proceeds can provide six or seven figures worth of funding. The payout for a policy can provide supplemental funding for a trust or may be the main asset that the trust controls. People may need to consider their debts and the standard of living of the beneficiaries they want to support when deciding how much coverage to carry.
Discussing current resources and legacy intentions with a skilled legal team can help people determine the best way to fund a trust. Life insurance proceeds are one viable option for funding a trust.
