A woman is buying term life insurance with beneficiary her daughter to pay off home. She has a family trust. Should trust be beneficiary?

  • by Stacy
  • Feb 06,2018
  • 3 answers

She wants to pay premiums from tthe family trust. I found this: In most cases, it makes better sense to name your beneficiaries individually on life insurance policies versus naming a trust as beneficiary. If your beneficiaries have creditor issues, mental health problems, can't be trusted with large sums of cash or their primary beneficiaries are minors or have drug issues, or there other special scenarios, then naming the trust as beneficiary might be a better route.
For federal tax purposes, if a spouse is named as beneficiary then life insurance proceeds received upon the death of the insured are generally income and estate tax free (if paid in lump sum). Trusts are not considered individuals; therefore, life insurance proceeds paid to trusts are generally subjected to estate tax. Also, the proceeds payable to a trust may not qualify for the inheritance tax exemption provided by some states for insurance payable to a named beneficiary. In such states, a higher tax may be owed.


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Insurance Answers (3)

lucy 6 months ago

https://www.nolo.com/legal-encyclopedia/...
Before my wonderful ex mother in law passed (she was a great lady), she written in her will a sum to her granddaughter that “hopefully” would be enough to pay for her college, if she died prior to her going to college and if not, then she would get at age 25 instead. I questioned this and she said, if she used the money for herself vs going to college to better her-self, then I don’t care since I will be dead and won’t know about it. Which ironically did happen, she spent it and by not going to school is now working in dead end jobs.
With life insurance, whoever you designate as the beneficiary gets the money and is (not) taxable, and they can spend the money how they wish, be it for the funeral or (not) or blow it on anything they wish.
Now (if) I understand your question correctly, then you want your daughter to use the life insurance to pay off (your) daughter’s house, but concerned would not and blow it instead, since like stated above can’t designate that the life insurance proceeds be used for something specific.
So yes most likely would want to have this set up in the trust (by a lawyer) to insure done properly. But be advised that a term policy maybe not the best option, since what (if) she is alive when the policy terminates? Most companies won’t insure after age 80, so better for her to have a permanent or universal policy instead.
.
So unless the estate is over 5.45 million, no estate tax, but could be subject to state/inheritance taxes, depending on where she lives.

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rob 6 months ago

Try actually asking local educated adults for real answers in ur country as it varies greatly duh

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H. Marie 6 months ago

she sets up the trust exactly as she wants it, if she leaves the daughter as the beneficiary of the life insurance the daughter will get the insurance money, if the trust is the beneficiary, the trust will follow the terms in the trust

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