So you’ve got life insurance, now what?

We’ve all seen that insurance commercial where a father passes away, and the mother is worrying about how she will pay the bills, so their teenage son goes out and finds a job. When he brings home his first check, the mother says, “It’s going to be alright. Dad took care of us.” In this commercial, the father had purchased a life insurance policy, so when he passed away, the mother had access to liquid cash to help cover the bills.

But what happens when there is no mother or when both parents pass away in a tragic accident or when the children are listed as beneficiaries and they are old enough to receive insurance money outright but not mature enough to wisely spend it?

Generally, what would happen is that the children would inherit the life insurance money. If they are under the age of 18, the money would be held on the children’s behalf by a guardian. On their 18th birthday, the money would be released to the children without any limitations, instructions, or supervision. And more likely than not, that money would be gone by the time the children turn 20.

But you can change that!

Don’t worry. It’s not as complicated as it sounds. Here’s a quick overview of how you can guarantee that your children are financially supported for the long-run by using a future trust.

Trust Defined

A trust is a legal entity that owns property on someone else’s behalf. The trust is managed by a trustee who is a person, or corporation, obligated to hold, invest, and distribute the property per your (the grantor’s) instructions. A future trust is one that doesn’t come into existence until a later date if certain conditions are met, for example, your children are under the age of 30 when you pass away.

How a Trust Works

Once a trust comes into existence, the trustee is responsible for securing, investing and distributing trust property as the need arises and as you instruct in your will. This can mean selling your house and putting the proceeds into a savings account or renting the home and putting rent money in a savings account or letting the children live in the home while the trustee pays for the mortgage using life insurance money. It can mean a trustee taking life insurance money and investing it in stock or in your children’s college fund or starting a small business for your children’s benefit. The options of how a trustee manages the trust are endless. It can be as creative or as generic as you’d like. Likewise, you instruct the trustee on when to distribute money to your children, how much at a time, and when to dissolve the trust.

To illustrate, imagine you have one child who is currently 8 years old. You are single, own a home worth $350k, and have a life insurance policy worth $600k in addition to other smaller assets. While your child is brilliant, you don’t want your child to get access to almost one million dollars right away if you die, so in your will, you create a future trust that would come into existence if your child is under the age of 35 when you pass away. You include the following instructions to the trustee:

  • if child is over 18, sell the home and place the profit into a savings account along with the life insurance money and all other assets;

  • at age 21, give to child $50k;

  • at age 25, give to child $100k;

  • at age 30, give to child 50% of what’s left in the trust;

  • at age 35, dissolve trust and give to child all assets remaining in trust;

  • at all times, provide for child’s reasonable needs: education, health, food, shelter, transportation.

If you end up passing away while the child is 26, the trustee would sell your home and combine the profit with all your other assets in a savings account, would give your child $150k outright and then would either give your child a consistent stipend to pay for reasonable needs or would give money for those needs when the child asks the trustee for the money. On your child’s 30th birthday, the trustee would give 50% of the remaining trust assets to your child, and five years later, would dissolve the trust and give your child everything that’s left in the trust.

How to Create a Trust

Future trusts are created within a will by including specific legal terms and signing the document in front of a notary public and witnesses. If you already have a signed will that does not include a future trust, no worry. You can amend your current will or make a brand new one all together.

Like the idea of guaranteeing for your children long-term support? Let us know! We’d be happy to make a future trust for you and your family.


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