"Inka Dinka" <inkadinka12@yahoo.com> wrote:
Can a revocable living trust be set up for a minor child such
that the trust is the contingent beneficiary of a life insurance
policy?
Yes, of course. It doesn't do anything to prevent the insurance
death benefit to be subject to estate tax in the deceased parent's
estate, however.
I understand that property needs to be assigned to the trust in
order for the trust to be of any use. This would make sense if
the trust is the primary beneficiary but what about being listed
as the contingent beneficiary? Without the death of the
primary beneficiary, there is nothing to transfer. Or does it
simply mean that if the contingent beneficiary kicks in, that
the trust would have the right to receive the proceeds?
A trust has rights of a person. If there is a trust existing at the
time, and the trust is a beneficiary of insurance proceeds, the
trust is the proper recipient.
At common law a trust did not exist unless it was funded with at
least some property. That rule has been eliminated, at least in
some of the states.
The basic idea is to use the trust to receive the proceeds of
life insurance policies in the case where both parents of a
minor child die. If the child is listed directly on the life
insurance policy as a contingent beneficiary, they will gain
access to the funds at age 18. Also, my understanding is that
the mangement of this money will have to be supervised by the
courts. It would be preferred to let the guardian specified in
the will (wife's sister) manage the funds directly until the
child turns 25.
When court process comes into play, the cost goes up. If you use an
intervivos trust and bypass the court process, your estate can save
money.
For example, suppose that a husband and wife each have an
employer provided life insurance policy with each other listed
as the primary beneficiary. The contingent beneficiary of the
life insurance policies is a living trust, specified as follows.
The trust contains only the proceeds of the two life insurance
policies. The beneficiaries of the trust are also the spouses
(for each other's property), with the contingent beneficiary of
the trust listed as the couple's minor child (until age 25,
managed by the wife's sister). (Obviously, the primary
beneficary of the trust should never kick in since if one spouse
survives the other, the insurance policy will pay the other
spouse directly without going through the trust, or so I would
think.)
Does this look right?
Sure. But, as long as you are creating a revocable trust, why not
put all your assets into it and avoid probate for your child?
Stu
