Estate Planning 101

How to Transfer Variable Life Insurance Policies into a Trust

Discover the process of transferring your variable life insurance policies into a trust with our step-by-step guide. This blog post will equip you with valuable insights to make informed decisions for better estate planning and ensuring your loved ones' financial security.
February 4, 2024

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Life insurance policies, particularly variable life insurance policies, are valuable assets that can be transferred into a trust. Doing so can provide significant advantages, such as protection from creditors, tax benefits, and avoiding probate. This blog post will guide you through the process of transferring variable life insurance policies into a trust.

Understanding Trusts and Variable Life Insurance Policies

A trust is a legal arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary. Variable life insurance is a type of permanent life insurance policy with an investment component, where the cash value is invested in a number of sub-accounts similar to mutual funds. By placing such a policy into a trust, you can control how the policy proceeds are distributed after your death.

Benefits of Transferring Variable Life Insurance Policies into a Trust

Transferring your variable life insurance policy into a trust can provide several benefits. Firstly, it can help avoid estate taxes, as the policy will not be included in your estate. Secondly, it can protect the policy from creditors, as the policy is owned by the trust and not by you personally. Lastly, it allows you to control the distribution of the policy's proceeds, ensuring that your loved ones are taken care of as per your wishes.

Steps to Set Up a Trust for Variable Life Insurance Policies

  1. Choose the type of trust: The most common type of trust for this purpose is the irrevocable life insurance trust (ILIT), which cannot be changed or canceled without the consent of the beneficiaries.
  2. Select a trustee: This individual or institution will manage the trust and distribute the policy proceeds according to the terms of the trust.
  3. Create the trust document: This document outlines the terms and conditions of the trust, including the trustee and beneficiaries.
  4. Transfer the policy to the trust: This involves changing the policy owner to the trust. Be sure to consult with your insurance company or a legal professional for this step.

Process of Transferring Variable Life Insurance Policies into a Trust

  1. Notify the insurance company: Inform the insurance company of your intention to transfer the policy into a trust.
  2. Change the policy owner: The owner of the policy must be changed to the trust. This is typically done by filling out a change of ownership form.
  3. Transfer the policy: Once the change of ownership form is processed, the policy is officially in the trust.
  4. Document the transfer: Keep a copy of the change of ownership form and any other relevant forms for your records.

Getting Professional Help

The process of transferring a variable life insurance policy into a trust can be complex, involving legal, tax, and financial considerations. Therefore, it is advisable to seek professional help. An experienced attorney or financial advisor can provide valuable guidance, ensuring that the transfer is done correctly and that all potential issues are properly addressed.

Conclusion

Transferring a variable life insurance policy into a trust is a strategic move that can provide significant financial and estate planning benefits. By following the steps outlined above and seeking professional advice, you can ensure that the process goes smoothly and that your loved ones are well-protected.