When Should I Set Up an Insurance Trust? : Understanding Life Insurance Trusts

This is part 4 of the blog series discussing life insurance trusts and estate taxes.

14. When should I set up an insurance trust?

You can set up one any time, but because the trust is irrevocable, many people wait until they are in their 50s or 60s. By then, family relationships have usually settled – and you know whom you want to include as a beneficiary.

15. Are there any restrictions on transferring my existing policies to an insurance trust?

Yes. If you die within three years of the date of the transfer, it will be considered invalid by the IRS and the insurance will be included in your taxable estate. There may also be a gift tax. Be sure to discuss this with your trust attorney.

16. Can I make any changes to the trust?

An insurance trust is irrevocable, so you can’t make changes after it has been set up. Read your trust document carefully, and be sure it’s exactly what you want before you sign.

Just don’t wait too long – you could become uninsurable. And remember, if you transfer existing policies to the trust, you must live three years after the transfer for it to be valid.

17.  Should I seek professional assistance?

Yes. If you think an irrevocable insurance trust would be of value to you and your family, talk with an insurance professional, estate planning attorney, corporate trustee, or CPA who has experience with these trusts.

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