Melville Irrevocable Life Insurance Trust

Life insurance offers a way for people to financially support their families after their death. However, a life insurance policy can have unintended consequences. Since it is considered an asset, it contributes to the total value of the policyholder’s estate. If the beneficiary of the policy receives public assistance, the life insurance proceeds could disqualify them from benefits.

A Melville irrevocable life insurance trust can address these concerns. Contact an experienced trusts attorney to determine whether this type of life insurance trust aligns with your family’s needs.

What Is an Irrevocable Life Insurance Trust?

A life insurance policy pays named beneficiaries a specific amount of money when the insured individual dies. A person may purchase a policy for themselves or another person, such as a spouse.

An irrevocable life insurance trust in Melville is a separate legal entity. The trust can purchase a life insurance policy, insuring the creator of the trust, the grantor, or the grantor and their spouse. The grantor appoints a trustee to manage the trust. While the trustee can be a beneficiary of the life insurance policy, they should not also be the grantor.

Each year, the grantor may transfer funds into the trust to cover the cost of the premiums. The trustee is primarily responsible for paying the premiums and managing the policy. When the grantor dies, the life insurance proceeds are deposited into the trust, and the trustee distributes them to the beneficiaries according to the grantor’s instructions.

Benefits of an Irrevocable Life Insurance Trust

An irrevocable life insurance trust allows a grantor to provide significant funds to their beneficiaries without having the policy’s value count toward their estate. This is especially important when an estate is subject to state or federal estate taxes. For example, for deaths in 2024, the federal estate tax applies to estates worth more than $13.61 million, while New York Tax Law § 952 imposes estate taxes on estates exceeding $6.94 million.

Additionally, placing a life insurance policy in a Melville irrevocable trust protects its value from creditors, as the life insurance policy is no longer considered part of the grantor’s assets. Therefore, creditors have no right to make claims against life insurance proceeds.

The life insurance policy proceeds are deposited into the trust upon the grantor’s death, but the grantor dictates when and how they will be distributed. The trust could instruct the trustee to distribute the funds over time rather than in a lump sum. This can be particularly beneficial if a beneficiary is irresponsible with money or if they rely on public benefits due to a disability. A meticulous attorney could help structure the trust’s distribution terms to preserve the beneficiary’s eligibility for public benefits.

Potential Disadvantages

While an irrevocable life insurance trust offers tax advantages and creditor protections, it is permanent. A grantor cannot change beneficiaries, cancel the policy, or alter payment instructions after the trust is established. Someone considering an irrevocable trust should ensure they fully understand the implications and restrictions of an irrevocable trust before proceeding.

In some cases, an individual with a life insurance policy may want to transfer it into a trust. Although this can be done, the proceeds will be included in the estate’s value if the grantor passes away within three years of the transfer. Establishing the trust before buying the policy ensures that the funds will not count toward the grantor’s estate value.

Setting up an irrevocable trust for life insurance in Melville is more complex than simply buying a policy and appointing a trustee. Working with a diligent lawyer could ensure the trust is drafted correctly and aligns with a person’s estate planning goals.

Consult a Melville Attorney About an Irrevocable Life Insurance Trust

A Melville irrevocable life insurance trust can be a powerful estate planning tool to support your loved ones after death. However, because the trust is irrevocable, it is critical to carefully choose the trustee and provide clear instructions for how the proceeds should be distributed.

Work with a skilled lawyer to ensure your irrevocable life insurance trust meets your goals. Our team could guide you through every step of the process, helping you make informed decisions that secure your family’s future. Get in touch with our office today to schedule a free consultation.