| Life insurance can be a valuable tool in planning for the future of one's children and in balancing distribution of assets.
For children and other survivors, the proceeds of a life insurance policy can take care of more immediate needs while social security benefits and property distributions are obtained. Life insurance also is a tool for providing for beneficiaries when assets of the person whose life is insured will not be sufficient to provide the care for survivors desired in the event of an untimely death of the person.
If children will be the beneficiaries of the life insurance policy, some mechanism will be needed to supervise distributions under the policy. While courts will appoint a property guardian for children receiving life insurance benefits and other property, the time and expense of such an appointment may be avoided by naming an adult custodian under the Uniform Transfers to Minors Act (UTMA) in the policy purchaser's home state. The custodian would manage the property in the interests of the minor children until the property is distributed as the children come of age at 18, 21, or 25, depending on the law of the state.
Proceeds of a life insurance policy may also be directed to a trust in favor of minor children to allow the person whose life is being insured greater control over the amount and timing of distributions to minor children as they come of age. However, the trustee for a child's trust has to file yearly income tax returns while the custodian of a UTMA does not, and tax rates on a child's trust property may be higher than the individual child's tax rate under the UTMA.
Life insurance also can be a valuable tool in planning the distribution of one's estate. Thus, if a person will leave behind a business, house, farm, or other property that cannot be divided among several survivors without selling the property and dividing the proceeds, the person may decide to leave the property to one or more specified survivors while naming remaining survivors as beneficiaries in a life insurance policy. Proceeds under such life insurance policies are not considered part of the person's estate and thus are not be subject to an estate tax if the person does not retain "ownership" of the life insurance policies. Such "ownership" is indicated by a right to change beneficiaries, to borrow against the cash value of the policy, or to change features of the policy. Copyright 2010 LexisNexis, a division of Reed Elsevier Inc. |