Mullen and Iannarone, P.C.
Serving the legal needs of corporations, individuals and
families of Suffolk County since 1972

Trusts as life insurance beneficiaries in New York

Many New York residents have life insurance policies in which family members have been designated as the beneficiaries. They should be aware that in some cases, it may be smart to instead establish a trust with the intended recipient named as the beneficiary to it, then naming the trust as the beneficiary of the life insurance policy.

One example of when setting up a trust as a life insurance policy beneficiary might be in order is when the intended recipient is not good with managing money. This kind of trust, called a spendthrift trust, can then distribute proceeds to the person over time instead of in a lump sum. If the intended recipient is a child who is disabled, a special needs trust can be established to provide for the child's needs without disqualifying them from receiving needed federal disability benefits.

Owners of large estates that exceed the federal estate tax threshold may want to establish an irrevocable life insurance trust. These trusts are set up in order to be the legal owner of life insurance policies, effectively removing the proceeds from the estate's value. Finally, simple living trusts can be established in order to keep the life insurance proceeds protected from the reach of creditors so that they can be passed to the person for whom they are intended.

Trusts are very versatile and can be set up in order to accomplish several purposes, such as to minimize federal estate tax or to avoid what can often be a lengthy and expensive probate process. Those who are interested in learning how a trust may be beneficial in their case may want to meet with an estate planning attorney who can review a client's goals and needs in order to make appropriate recommendations.

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