A trust is an estate planning tool that can provide long-term support for children and other dependents. People can possibly even leave a multi-generational legacy with proper planning and funding.
Some people might assume that they are not in a position to establish a trust for their chosen beneficiaries because they do not have enough liquid capital to fully fund the trust. Thankfully, there are many possible solutions for funding a trust, including using life insurance proceeds.
How can a future policy payout fund a trust?
Many people assume that a trust requires immediate funding. However, it is relatively common for people to make arrangements for assets to transfer to a trust after their passing.
Pour-over wills, deeds and beneficiary designations make it possible to fund a trust posthumously. A policyholder who wants to use life insurance to fund a trust must file paperwork with the insurance company naming the trust as the beneficiary for the policy. If they die while the policy is still in effect, the payout transfers to the trust and is subject to the control of the trustee they selected.
This approach can preserve resources for minor children and prevent the misuse of those insurance proceeds. Parents and others hoping to provide lasting support for their loved ones may want to supplement their liquid capital and other assets used to fund a trust with the policy payout from their life insurance coverage.
Those thinking about funding a trust benefit from estate planning guidance as they evaluate their options. Even those without tens of thousands of dollars in liquid capital can frequently establish trusts if they have proper guidance.