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Considering an irrevocable trust and life insurance policies

There are many steps New Yorkers can take to make their estate plans as robust as possible. Some decide to sell businesses and homes, thereby converting the asset to cash that is more easily distributable, while others try to utilize trust-bearing accounts that only pay out to beneficiaries when certain conditions are met. Another common tactic in building an estate plan is purchasing life insurance.

Life insurance pays out a lump sum of cash to a beneficiary or beneficiaries upon your death. However, these policies can sometimes cause estate planning headaches. Why? To start, the sudden windfall received by your beneficiary may be overwhelming and difficult to manage, thus making it susceptible to mismanagement. Next, proceeds from a life insurance claim may render a beneficiary who receives government benefits, like Medicaid, ineligible for those benefits. Additionally, money recovered from life insurance may be open to creditor collection if the estate has significant debts.

There are ways to utilize a life insurance policy while minimizing these risks. Perhaps the best way is to create an irrevocable life insurance trust. This trust will transfer the policy's ownership from you to a trust. This will protect any proceeds from creditor collections and also allow you to dictate to whom and when funds from the policy will be dispersed. Therefore, if you plan on leaving the policy's benefits to someone who struggles with money or who is receiving government benefits, you can put constraints on the payout so that it has the maximum benefit for the beneficiary.

As with all estate planning options, the irrevocable life insurance trust must be carefully crafted and revisited regularly to ensure that it meets your needs. If you want to learn more about how this trust can play a role in your holistic estate plan, then you may want to sit down with a legal professional who can help you identify your estate planning goals and develop a strategy to achieve them.

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Enea, Scanlan & Sirignano, LLP
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White Plains, NY 10601

Phone: 914-269-2367
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