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What are the benefits of a life insurance trust?

On Behalf of | Jul 13, 2017 | Trusts |

When you purchase life insurance for your family in Illinois, you may be thinking about covering your funeral costs and any end-of-life expenses such as hospital bills, as well as replacing lost income that you would have provided. In this way, even though you may not have extensive assets now, your heirs will not suffer financially. However, giving them a lump sum after your death may not be the best answer. Instead, NerdWallet notes that you may want to fund a trust with the payout from your life insurance.

While the beneficiaries of your life insurance would typically be your heirs, when you set it up as a trust, you are making the trust the beneficiary. Then, a trustee would oversee the assets and the income it provides. If the beneficiaries of your trust are minor children, you have probably named a guardian for them as part of your estate plan. This person does not have to be named the trustee.

Many people feel that one of the best advantages of a trust is that they can decide how the money is used. You can set guidelines for the trustee, including how much to allocate for day-to-day expenses or how much should be set back for education. If you have a child with a disability, whether minor or adult, he or she may rely on outside resources to cover health care costs and other living expenses. A special needs trust allows you to limit how much monthly or yearly income is received so that your child still qualifies for assistance. This information is general in nature, so it should not replace the advice of an attorney.