My understanding is that living trusts typically do not own life insurance policies. Therefore, I am trying to understand how one can properly "fund" a life insurance policy into a revocable living trust. Does this occur automatically when you make the trustees of the trust the beneficiaries of the life insurance policy during the decedent's life? In the case that I am reviewing, the trustees were also given the power to hold the insurance for the sole purpose of safekeeping the policy for the Settlor according to the trust document. After the Settlor's death, they could then collect the insurance proceeds from the policy that would then be in the trust. Was the revocable living trust funded with the life insurance policy during the decedent's life in this case?
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You would NOT make the trustees the beneficiaries; you designate the Trust itself as a beneficiary. This usually entails a change of beneficiary with the life insurance company and they would want a copy of the trust document. The trust would not have ownership of the proceeds until the owner's death, so no, it is not funded until that happens. The trustees derive their power from the trust document, but it does not apply to any asset until it is in the trust. They would have no control over the life insurance until it is paid out to the trust. Many people set up trusts and never fund them by titling their assets in the trust's name, or making it beneficiary of other financial products. So it is rather important that a will be made along with the trust and a pour-over clause included, sweeping up any untitled assets at the death of the owner. Whether or not an insurance company would accept an RLT as a bene, I cannot say, as the trust could be revoked at any time. But then again, beneficiaries pre-decease the insured all the time. If they did accept it and the trust was no longer in existence at the owner's death, payment would default to the estate assuming no contingent beneficiary was named.Last edited by Burke; 09-02-2016, 02:35 PM.
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