Beneficiary of Life Insurance

Beneficiary of Life Insurance

John and Mary have created a revocable living trust. John and Mary each have separate policies of insurance on their lives. They can name the spouse as the primary beneficiary and the trust the contingent beneficiary, or they can name the trust as the primary beneficiary. Here are some reasons for naming the trust as the primary beneficiary.

If the couple is in a car accident and one dies and the other is rendered incapacitated, if the surviving spouse is the primary beneficiary, a conservatorship will have to be instituted for the spouse in order to collect the policy proceeds. If the trust is the beneficiary, the successor trustee can collect the proceeds and use them for the spouse in whatever manner is dictated by the trust.

If the couple has an A/B or disclaimer trust which seeks to protect the estate tax exemption of the first spouse to die by placing (or giving the surviving spouse the option to place) the first spouse to die’s share of the assets into an irrevocable trust for the surviving spouse’s use, this benefit will be lost if the surviving spouse is the direct beneficiary. If the trust is the beneficiary, with an A/B Trust, the policy proceeds can be divided and allocated between the Survivor’s revocable trust and the Credit Shelter or By-Pass irrevocable trust which protects the first spouse to die’s estate tax exemption. If the trust is a disclaimer trust, the trustee can collect the proceeds and the surviving spouse can decide within the 9 month time limit from the first spouse to die’s death whether or not to protect the first to die’s exemption by disclaiming (if the surviving spouse elects to disclaim,  the disclaimed assets will pass to the irrevocable trust for that spouse’s use).

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About randyspiro

I am a super lawyer in California with dual specialization in Estate Planning and Taxation.
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