Should I Name My Trust As Beneficiary On My Life Insurance?
Someone asked my team the other day if they should elect for the Trust to be the beneficiary of their Sacred Account and I want to talk about that today!
The Sacred Account is a form of High-Early-Cash-Value-Dividend-Paying-Whole-Life-Insurance.
It allows me to deposit money into it just like a savings account but has the following unique protections in place for my money:
- It is guaranteed to grow
- It is guaranteed against loss
- It is protected from taxation
- It is protected from creditors
- It is protected from lawsuits
- It protects my privacy
- My deposits are fully backed
- My account is insured against insolvency of the life insurance company
When I deposit funds into the account, they grow at 3–5% per year on average for the rest of my life, tax free!
I can also borrow against 70–90% of my account value with an annual interest expense of 1–3% and my account will still keep growing at 3–5%.
But what’s also special about the Sacred Account is that it is life insurance and that means it has a death benefit that will pay out to whomever I choose, tax free.
It is permanent insurance, which means it doesn’t expire and is guaranteed to payout and so the death benefit will for sure be received by my beneficiaries.
Most people select their spouse, their children, their company, a business partner, or even a charity as their beneficiary.
But I want to suggest making your Revocable Living Trust the beneficiary of your life insurance policy.
Usually, a Revocable Living Trust is utilized to avoid a legal process called Probate.
Probate means when you die, your assets will go through the court system to be distributed as per either your will or per state law if you don’t have a will.
Life insurance already avoids probate because it pays directly to a beneficiary, tax-free.
So why use a trust then?
By making your RLT your beneficiary, you can control how and when your life insurance proceeds are used.
Imagine giving your spouse or your children (or whoever for that matter) several million dollars in a lump sum, tax-free and you are not around to make sure it gets used the way you intended.
This actually creates a new financial burden because your loved ones are most likely not educated in how to put this kind of money to work and it will either lead to them blowing it quickly, or them living in fear of losing it and neither of these are ideal scenarios.
Within a RLT you can add provisions on how the funds can be used, when they can be used, when they cannot or how they cannot and even require that your beneficiaries work with a trusted advisor or meet financial education requirements prior to accessing the funds.
The result is that your wishes can still be carried out even when you’re not around.
Two examples of this that I’ve seen are a father making the stipulation that he will match his son’s income and that this is the only way his son can take withdrawals from the trust after the father has passed away. If he earns $1 the trust will pay him $1. This incentivizes his son to go out and earn great income!
Another example is John D. Rockefeller who has the requirement on his family trust that beneficiaries must take out a life insurance policy on their own lives and the trust will be named the beneficiary so that when one of the Rockefeller heirs passes away, the trust receives a tax-free reimbursement of all of the funds they withdrew.
So, in summary, and I’m not a lawyer (but I have a great law firm who does Trusts), I think it is a great idea to name your Trust as beneficiary to your life insurance policy!
If you’re reading this and have never considered a strategy like this one, I want to offer you a free copy of my book The Blueprint to Financial Freedom so that you can get more info not only on this strategy, but on many others!
Click here to get a free copy!
To Purpose, Wealth & Freedom,
Jerry Fetta is the CEO and Founder of Wealth DynamX. He is a nationally recognized financial expert featured in Forbes, Yahoo Finance, Fox, Chicago Weekly News, New York Finance, interviewed on over 45 podcasts with world renowned experts, earning endorsements and affiliations throughout his career with names like Kevin O’Leary, Grant Cardone, Dave Ramsey, and Pamela Yellen.
Jerry’s mission in life is to help create millions of financially educated and solvent families achieving greater financial freedom and sharing the truth about money with those around them.
Learn more at www.WealthDynamX.com
(DISCLAIMER: The information in this content should not be considered tax, financial, investment, or any kind of professional advice. Only a professional diagnosis of your specific situation can determine which strategies are appropriate for your needs. Wealth DynamX can and does not provide advice unless/until engaged by you.)