Beneficiary of a life insurance policy

 Sam and Elizabeth (husband and wife) have created a trust which remains revocable when one of them dies, and which gives the surviving spouse the option of disclaiming (refusing to accept) all or a portion of the first spouse to die’s assets, in which event the refused assets pass to an irrevocable trust for the use of the surviving spouse. Should Elizabeth or the trust be the primary beneficiary of a policy of insurance on Sam’s life? If the trust were the beneficiary, Elizabeth would still get unlimited access to the policy proceeds. More important, if Elizabeth was incapacitated when Sam died, the successor trustee could apply for the insurance and use the proceeds for Elizabeth’s benefit. If Elizabeth were the direct beneficiary, a conservatorship would have to be established for her in order to obtain the proceeds. If Elizabeth wished to protect Sam’s estate tax exemption (assuming that portability is lost after 2012) by disclaiming assets, she would still get the use of them without having the disclaimed assets be subject to estate tax at her death. This option is preserved when the trust is the beneficiary of the policy. But if Elizabeth were the primary beneficiary and the children were the secondary beneficiary, then if Elizabeth disclaimed, she would forfeit the disclaimed policy proceeds because they would pass to the children rather than to the irrevocable trust for her benefit.


About randyspiro

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