life insurance

Child Beneficiaries And Their Life Insurance Trusts

According to Merriam-Webster's dictionary, a trust is a property interest held by one person for the benefit of another. The trustee (the person who holds the trust for another person) does not have the right to benefit from the trust. They can, however, be held accountable and liable for any lost funds, in the event they don't manage the assets responsibly.

It is a good idea to have a life insurance trust to benefit dependent children when your income is lost due to your death, but more so, it is important that these benefits you set up for your children are used the way you want them to be used. To do this you will want to create trusts for each of your children. Trusts are easy to create, so all you need to do is check with your life insurance company and see what verbiage you will need to include in your life insurance policy and will. You should appoint a guardian, as well as stating the trust in your last will and testament-in the case of a life insurance policy, your death benefits would be transferred to the trust after your death.

It's quite common for young parents to name each other as beneficiary, but if they both die, the money can be put into a trust for the couple's children. The trust agreement needs to be clear as to whom the trustee is and how the money is to be used.

What if I have a special needs child?
If you have a special needs child, and they can neither work nor care for themselves, a special needs trust can be set up in their name using your life insurance funds to pay for their care. Social Security is generally the income they can expect to receive when you die, so it's important to note that by giving the money to them outright, they may be ineligible for the Social Security until the money runs out. With the special needs trust, the trustee can pay for everything except for essentials, such as food, clothing, shelter and medication-which can be covered by Social Security instead.

It is most important to be sure that the terms of your trust are in writing and that you make the life insurance company aware, as well as the allotted trustee, of the arrangements of the trust.

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