Insurance Trust

An Insurance Trust is an estate-planning device where the ownership of one or more insurance policies is transferred to an independent Trustee in an Irrevocable Trust. Since the independent Trustee holds title to the insurance policy, the value of the death benefit will not be included in the insured's Gross Estate for Federal Estate Tax purposes when he or she dies. The independent Trustee will distribute (or hold and administer) the proceeds from the policy in accordance with instructions contained in the trust.

What are the benefits of placing insurance policies in an Insurance Trust?

There are several important benefits that can be realized by transferring insurance policies to an Irrevocable Insurance Trust:

• Insurance proceeds in the Trust are excluded from the Estate for Federal Estate Tax purposes.
• For larger estates, insurance proceeds may be used to replace the money lost to Estate Taxes. The proceeds of an insurance policy placed in an Insurance Trust are not included in the insured's estate. The heirs may elect to use the money received from the insurance contract to pay estate tax. It is usually much cheaper to pay estate taxes with insurance dollars than to use assets from the estate to pay estate taxes. The use of insurance proceeds will also avoid forced-sale situations.
• An Insurance Trust will allow professional management of insurance policy proceeds. With the death benefits of many policies totaling in the hundreds of thousands of dollars, it is often advisable to delay or stagger the distribution of insurance policy proceeds. The Insurance Trust can contain instructions whereby the policy proceeds are distributed to the beneficiaries over a period of time, instead of in a lump sum. During the distribution period, the independent Trustee can invest the policy proceeds in safe, tax-deferred investments.
• Insurance Trusts avoid probate. Assets contained in an Insurance Trust will not be probated. The proceeds of the insurance policies contained in the Insurance Trust will be distributed according to your instructions contained in your Trust.

How are insurance premiums paid for policies in an Insurance Trust?

Insurance premiums can be paid in any number of ways: directly to the insurance company, to the Trustee, from the accounts established in the Trust, etc.

Who may serve as a Trustee?

You may select any independent third party to serve as Trustee. Normally, the former policy owner should not serve as Trustee. Trustee fees in any case should be nominal.

Are insurance proceeds paid to an Insurance Trust protected from the creditors' claims?

Yes. Insurance policy proceeds paid to an irrevocable Insurance Trust are not subject to the claims of the creditors of the deceased, including Medicare claims, expenses of the last illness, etc.

Are Insurance Trusts a matter of Public Record?

No. The existence and the terms of the Insurance Trust remain a private and confidential matter between the insured and the Trustee.

Who should have an Insurance Trust?

If you are single and your estate - including your life insurance - is approaching the Federal Estate Tax Exemption, or if you are married and your total estate - including your life insurance - is approaching two times the Federal Estate Tax Exemption, an irrevocable Insurance Trust is something you should definitely consider.

How do I set up an Insurance Trust?

Simply apply for new coverage through Southern Financial Services, or provide your Southern Financial Services Representative with copies of your existing Insurance policies and with the additional information concerning the distribution of the policy proceeds. Please allow three to four weeks for completion of the trust.