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A trust may be used to protect your life insurance assets

As has been discussed in previous posts here, trusts can protect an individual's wealth by holding ownership in a securely managed device. Wealth and property put into a trust are no longer the property of the original owner, and as such when that individual dies the estate will not include the items and assets that are passed into the trust during the trust creator's lifetime. Reducing the overall size of an estate can help avoid the financial and temporal strains of probate, and as such trusts are very useful tools for those who wish to actively control their estates.

One asset that many Americans possess is life insurance. People buy life insurance policies in order to provide their loved ones with financial security so that they will have money after the policy holders pass on. Life insurance policies can be large or small, but generally a life insurance policy may be placed into a trust to protect its value from creditors and taxes during the probate process.

When a life insurance policy goes into a trust, in creates an irrevocable life insurance trust, also known as an ILIT. The former owner of the life insurance policy may not directly manage it, but that former owner may make important decisions about how the ILIT will be administered, including who shall be named as beneficiaries of the ILIT and who shall serve as the trustee or administrator of the ILIT. Since life insurance can be taxed during the administration of a person's estate, it can be helpful for such policies to be placed into irrevocable life insurance trusts.

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