Normal Life Insurance vs. Life Insurance Trusts in North Palm Beach

Life insurance often plays a central role in many estate plans. Life insurance is relatively cheap to obtain at a young age, and it provides considerable compensation for your loved ones if you pass away. However, some families choose a more complex route by establishing life insurance trusts. What exactly is the difference between a “normal” life insurance policy and a life insurance trust? What are the benefits of each option, and which one is right for you? These are questions you might want to ask an experienced estate planning attorney in North Palm Beach.

Normal Life Insurance Distributes Funds According to Pre-Set Rules 

A normal life insurance plan distributes payouts to your beneficiaries when you pass away. The details of these distributions depend entirely on the specific policy. Some life insurance plans pay out lump sums when policyholders pass away, while others pay out gradual distributions to beneficiaries.

The key thing to remember is that while you can choose your own life insurance policy, once you die, you can’t change the rules yourself. The policy pays out the money in a specific way, according to the contract between you and the insurance company and you won’t have any control over how this process occurs after your passing.

Life insurance is relatively affordable, especially if you obtain your policy while you’re still young. This makes life insurance a popular estate planning tool for a wide range of families, including both medium and high-income professionals. In 2024, Forbes reported that the average life insurance plan costs about $12 per month.

A Life Insurance Trust Is a Separate Legal Entity 

A life insurance trust “holds” your life insurance policy. Trusts are separate legal entities. This means that your trust can own your life insurance policy as if it were a different person. When you transfer your life insurance policy to a trust, it is no longer in your “estate.”

This transfer can shield life insurance payouts from federal estate taxes. While the federal estate tax exemption remains fairly high, wealthy families often use life insurance trusts to avoid estate taxes.

A life insurance trust also gives you more control over how your beneficiaries will receive the payout. Instead of allowing them to receive millions of dollars all at once, your trust could specify a more gradual, “spendthrift” system. You might also delay this payout until your children reach a mature age.

Can a North Palm Beach Estate Planning Attorney Help With Life Insurance? 

If you want to obtain life insurance as part of your estate plan in North Palm Beach, you do not need assistance from a lawyer. You can simply contact a life insurance company and get started with a policy. However, an attorney may be able to help you integrate your life insurance policy into your estate plan – particularly if you want to establish an irrevocable life insurance trust. Speak with Kitroser Lewis & Mighdoll to learn more about the next steps.

Sources: 

forbes.com/advisor/life-insurance/how-much-is-life-insurance/

investopedia.com/articles/personal-finance/092315/7-reasons-own-life-insurance-irrevocable-trust.asp