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Trusts and Life Insurance Policies

While some may think that trusts are only for those who are very well off financially, a trust can be an important estate planning tool for anyone, especially those with children. A trust allows you to set specific assets aside to be dispersed according to terms that you set forth. A designated trustee is responsible for ensuring that your wishes for the trust are carried out properly, and the beneficiaries are those who are able to use the assets.

While a beneficiary doesn’t have to be a family member, trusts are often used by those with children. One reason for this is to protect the assets and ensure that the children get what they are supposed to. This can be especially important in cases of life insurance policies and remarriage. If the surviving spouse remarries, it is possible that any children from the previous marriage would not get access to any money remaining when the other parent dies. If the life insurance policy is put in a trust, however, it can allow the surviving spouse access to the money, while ensuring that anything left over is passed on to the children.

A trust can also ensure that children are protected from their own poor judgment. For those who will be leaving significant financial assets to their children, a trust can make it so that the money can only be used for specific things or is paid out in smaller amounts over time. It can also be designated that the money be paid out at a certain age or life milestone. The rationale behind this is that young people do not always have enough life experience to properly handle or invest a large inheritance. By putting the assets in a trust, it can reduce the risk of poor financial decisions.

While what goes into a trust at the time of your death can be outlined in a will, that means that everything still has to go through probate. To avoid this, you can have someone who specializes in estate planning law in Massachusetts draft the paperwork to put the assets into a trust now and make sure that you have the trust designated as the beneficiary of any life insurance policies.

Source: The Enterprise, “MAKING CENTS: Why trusts work for families” John Napolitano, Jun. 01, 2014

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