Many Mississippi residents may not think about creating an irrevocable life insurance trust until they’re older and have more assets. However, there are multiple benefits to establishing a trust sooner rather than later. Establishing an irrevocable life insurance trust can help your loved ones avoid probate and ensure they receive their policy proceeds efficiently and quickly.
If you have questions about the benefits of an irrevocable life insurance trust or estate planning, the attorneys at Palmer & Slay, PLLC, are here to help. We’ve helped many Mississippi residents create comprehensive estate plans that meet their goals and protect themselves and their loved ones. We are happy to answer questions and help you understand all of your legal options. Contact Palmer & Slay, PLLC, today to schedule your initial consultation.
What Is an Irrevocable Life Insurance Trust in Mississippi?
An irrevocable trust cannot be rescinded or modified by the person who created the trust after it’s been created in most cases. Many estate planners use an irrevocable trust to hold their life insurance policy that will be paid on their death. As the grantor or settlor, you do have the right to decide who the beneficiaries of a life insurance policy will be. You can also set forth the terms under which the beneficiary will receive the proceeds of a life insurance policy and any other assets the irrevocable trust owns.
The Advantages of Establishing an Irrevocable Life Insurance Trust
Creating an irrevocable trust may seem intimidating, but it can’t be changed or revoked during our lifetime. The person who created the trust gives up the rights of control and management of the trust after it was created. There are specific benefits that come with creating an irrevocable trust. The primary benefit is to provide funds for your surviving family members.
Quick Access to Life Insurance Proceeds
After the death of a loved one, surviving family members often face financial challenges. When you create an irrevocable life insurance trust, your loved ones will be able to access the life insurance proceeds quickly. These funds can replace earnings for your family members and loved ones. They can also cover the cost of final expenses, such as funeral and burial expenses. Many estate planners use the funds to help provide education for children and grandchildren or to provide liquid assets to cover any taxes they may face.
One of the most important benefits of creating a trust is to avoid the probate process. Life insurance policies also avoid the probate process if there is a clearly designated beneficiary. However, people sometimes fail to update their beneficiary, or the beneficiary has already passed away. A person may have gotten divorced and forgotten to change the beneficiary without adding contingent beneficiaries. In these scenarios, the life insurance policy would need to go through the probate process for your heirs to receive death benefits.
If you transfer the life insurance policy into a properly drafted trust with contingent beneficiaries, you can avoid these situations. For example, you can name your child as the trust beneficiary but state that their interest will transfer to your grandchildren if they pass away. The probate process is expensive and time-consuming. Transferring your life insurance policy ownership into your trust can help you avoid these complications so your beneficiaries can access the funds quickly.
As the irrevocable trust owns the life insurance policy, not the beneficiaries, the trust can provide a measure of asset protection from potential creditors. Your creditors will generally be unable to attach any life insurance policy proceeds to a lawsuit against you. Additionally, suppose your heirs have creditors or go through a divorce. In that case, the assets within the irrevocable trust will generally be protected from their creditors while the assets remain in the trust.
Control of Assets
When you take out a life insurance policy, you can designate the beneficiary or beneficiaries of the policy. However, you can’t control how the process will be distributed to the beneficiary. By creating an irrevocable life insurance trust, you can ensure that the trust’s principal and income are distributed when and how you’d like them to be distributed. A trust gives you control over how your beneficiaries access and spend the funds. This can be beneficial when beneficiaries are spendthrifts, have addiction issues, or you’d like them to reach a certain age or goal, such as finishing college, before they access the funds.
Eligibility for Public Benefits
When your beneficiary has special needs or is disabled, they may be receiving important government benefits, such as public health insurance and Social Security benefits. Disabled individuals who receive supplemental security income are subject to asset and income restrictions. If their asset and income level exceeds a specific amount, they will lose eligibility for those benefits. Irrevocable life insurance trusts shelter assets and income so that your special needs beneficiaries can maintain their important government benefits.
Minimizing Estate Taxes Through An Irrevocable Life Insurance Trust
Assets that you transfer into an irrevocable life insurance trust will be subject to federal gift tax laws. As a result, if the value of the assets transferred into the trust exceeds the annual exclusion amount for any tax year, a Form 709 gift tax return needs to be filed. When you transfer your life insurance policy into an irrevocable trust, the death benefit should not be included in your estate. It will not be subject to estate taxes when the trust is drafted correctly.
Discuss Your Life Insurance Trust with a Mississippi Estate Planning Attorney
If you’re interested in starting the process of creating an irrevocable life insurance trust in Mississippi, please contact Palmer & Slay, PLLC to schedule a consultation. One of our experienced estate planning attorneys will be happy to provide you with experienced legal counsel and answer your questions. Life insurance trusts have helped many people protect their assets, decrease their tax liability, and allow their loved ones to access life insurance proceeds quickly.