Appointing a Trust as a Beneficiary

Why would you want to appoint a trust as the beneficiary as your life insurance policy?  There are a lot of pros and con’s to this subject, but I will name a few of the positive things when setting up a trust to receive the funds from a life insurance policy.

A trust can:

  • Hold the money in a secure location so that a spouse or children may only spend the money in a timely manner.  This can prevent emotions from persuading them they need a 10,000 sq ft house b/c the 2,500 sq ft house just had too many memories of you.
  • Make sure your beneficiaries (children in this case) are of a competent mind and are not participating in any illegal activities.  Ex: No drugs, not in jail, responsible adults
  • Make disbursements of the life insurance proceeds to the charity of your choice.  Sometimes your children may not think the charity you have chosen is one that should receive donations.
  • Sometimes you may want to protect your children from having your spouse remarry and having a deadbeat come in and spend all the money.  This happens quite often.  I have a friend that setup a trust to only distribute annual funds to his wife as long as she was single.  If she remarried the trust was to hold onto the money till the children reached the age of 25 and had steady jobs or were business owners.

Think about this:  Let’s say you are married with 2 kids and have a 2 million dollar life insurance policy to take care of your spouse, kids, mortgage, college expenses, and any other major expenses over the next 15 – 20 years.  Well 3 years after you pass away your spouse meets an individual who sweeps them off their feet.  Then 3 years later your spouse finds out that this individual was terrible with money and everything you left them is gone.  Now the kids have to take out a student loan for a college education, take out a loan to get a dependable vehicle to get them to and from college, and will not have any type of security when the leave college.

This example happens way more than people think.  A trust is not mandatory, but it sure can give you some peace of mind knowing that your money will be handled properly when you are gone.

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Related Article

senior division manager Article added 08/16/2011 by Ryan Eaton
Senior Division Manager: Morgan White Group

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