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Combining a life insurance policy with a trust

Georgia residents who incorporate trusts in their estate plans often do so because they worry about heirs who are young or have been irresponsible with money in the past being left large lump sums. Trusts allow assets to be distributed to beneficiaries at designated times or when certain milestones, such as graduating from college, are reached, which can help to ensure that money is spent or invested wisely and assets that have taken a lifetime to accumulate are not squandered.

The death benefits paid out by life insurance policies are usually significant, which is why it may be prudent to have them put into a trust rather than paid directly to beneficiaries. For individuals with large estates, paying life insurance benefits into a trust can also provide a hefty tax benefit. Another benefit of using a trust in this way is that it provides an individual with far more control over beneficiary designations.

Taking this path ensures that a trust will contain enough money to cover debts and the costs of administering the estate. When trusts are not sufficiently liquid, assets may have to be sold to generate the cash needed. Funds placed into a trust are protected from claims made by lenders and other parties that the beneficiaries owe money to, and using a trust may also ensure that heirs continue to qualify for government programs like Medicare.

Attorneys with estate planning experience might also suggest using trusts because they allow estates to avoid probate. The probate process can be lengthy and the proceedings take place in open court, and this could give rise to disputes among heirs who are unhappy about the terms of a will. Attorneys might also recommend reviewing estate planning documents on a regular basis and drafting a pour-over will that places any of an individual’s remaining assets into a trust when they pass away.


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