Should My Trust Be A Beneficiary of My Life Insurance?

When planning your estate, ensuring that life insurance, retirement accounts, and other financial assets are properly integrated into your Trust is essential. Unlike tangible assets that are directly transferred to a Trust, assets like life insurance policies, retirement accounts, annuities, and stock option plans require a different approach.

Life Insurance and Retirement Accounts: Key Considerations

For life insurance, you can name your Trust as the contingent beneficiary. This applies whether you’re married or single. Doing so ensures that the insurance proceeds are managed according to your Trust’s instructions, if your primary beneficiary predeceases you.

When it comes to retirement accounts—such as IRAs, Keoghs, and annuities—the strategy varies based on your marital status. If you’re married, designate your spouse as the primary beneficiary. This allows your spouse to roll over the account into their IRA, continuing to defer income taxes. If you’re not married, consider naming individuals as beneficiaries. While they can’t roll over the account, they can take distributions over five years, unlike a Trust, which requires all deferred income taxes to be paid in the year of your death if named as the primary beneficiary.

Avoiding Common Pitfalls

It’s not just about taxes. Naming your Trust as a contingent beneficiary also ensures that the assets benefit from the same careful planning applied to your other estate components. This prevents unintended consequences from fine print clauses in beneficiary forms provided by insurance companies and financial institutions.

To ensure your wishes are met, send a letter of instruction to each financial institution and insurance company. Include account numbers and request that your Trust be named as a contingent beneficiary. Complete and return any forms they provide promptly to confirm your instructions.

Act Now: Secure Your Financial Future

Are your life insurance policies and retirement accounts set up to align with your Trust? Take a moment to review your beneficiary designations and make necessary changes.

For professional guidance on incorporating these assets into your Trust and managing your estate plan effectively, turn to The Mendez Law Firm. We specialize in Estate Planning and can help you create a comprehensive Family Estate Plan. Call us at (407) 380-7724 or Email Us TODAY at mail@themendezlawfirm.com. We offer a FREE, No Obligation, No Cost office or Virtual Zoom conference to discuss your Estate Plan and explore probate avoidance and asset protection strategies tailored to your needs. If you’re in the Greater Orlando Area, let us assist you with all your Estate Planning and Asset Protection needs.