Many young families purchase life insurance to replace a person’s income if anything happens to them. After purchasing life insurance, it is also wise to consider creating a trust that could conserve life insurance proceeds. Generally, the primary beneficiary of life insurance proceeds would be an individual’s spouse. If something were to happen to both parents, most people would want the life insurance to pass on to their children. It is common to see children named as alternate beneficiaries of life insurance. I much prefer seeing a revocable trust as alternate beneficiary of life insurance. If children are named directly, they would receive outright ownership of such proceeds at age 18. If any child is under the age of 18, court proceedings would be necessary to appoint someone to conserve the proceeds for their benefit until they reach age 18. In other words, minors can’t inherit assets.
By naming a trust as beneficiary of life insurance proceeds, you can control exactly how you want it to be used for the benefit of your children. In your trust, you will name a successor trustee who will have a legal duty to carry out the wishes you specify in the document. A very common method of conserving assets involves the successor trustee covering any health or educational needs that come up. Additionally, once a child reaches age 25, they receive a portion of their inheritance. At age 30, they receive another portion and at age 35 they receive the remaining balance of their inheritance. This allows your children to mature and use the inheritance responsibly while avoiding the need for a court appointed conservator over the asset. Similarly, it insures that there is something available for health or educational needs because it prevents children from spending an inheritance irresponsibly at age 18. To learn more about incorporating life insurance into your estate plan, contact the Dana Law Firm today.