By Elliott Topkins, Esquire
12/22/11
There are not many adults with children who do not have life insurance. The best part about this product is that the increase in life expectancy has meant the cost of all forms of life insurance has been going steadily down. So, a person can protect his or her family from life’s unexpected tragedies for much less money than in prior times. In a word, you can buy more for less, and people are taking advantage of this and buying many different types of life insurance as never before.

Life insurance has other advantages. For one thing, life insurance is not a probate asset so there would almost never be a time when it would need to be included in a probate. The exception to this rule is when a person makes his or her estate the beneficiary of a life insurance policy in which event the asset would need to be “probated” along with any other probate assets.

I have cautioned readers from time to time about the care that must be taken with life insurance. If you had life insurance in place, and you and your spouse were together on a plane that experienced the 9/11 tragedy, you might right now be in a situation where your 18 year old, having reached majority, is entitled to take possession, without any safeguards, of a considerable amount of money. Your beneficiary designation was to your surviving spouse, and if your spouse was not alive, then “share and share alike” to your children. This is not the best way to provide for your family, since upon reaching majority, your children can request outright ownership of the insurance proceeds, usually in the hands of their legal guardian until that time.

In my opinion, a life insurance trust, with provisions for distribution of principal at a later date than 18 is a preferable option. The insurance proceeds stay out of the probate arena. Yet there are strings attached to the insurance proceeds which will insure that your children do not come into large sums of money when they do not have the financial savvy or experience to deal with same.

Through Dec. 31, 2012, the estate tax exempt amount of money is $5 million. To my knowledge, this is the highest exempt amount in the history of the estate tax. Perhaps a Congress looking for new streams of revenue may change this amount for years beginning after Jan. 1, 2013. If there is a change, a different kind of life insurance trust, i.e., the irrevocable versions, may offer estate planning advantages. For this insurance trust, the owner of the policy transfers ownership of the policy to the irrevocable trust, thereby removing the insurance proceeds from the prior owner’s taxable estate.

There should be an insurance trust out there which fits your needs. If you are interested in discussing this, call me at (781) 849-5906 or send me an email [etopkins@topbev.com].

(Mr. Topkins is an attorney with Topkins & Bevans, Braintree Executive Park, 150 Grossman Dr., Braintree, MA 02184. His blog can be found at http://realtorsresourceblog.com. His telephone number is 617/596-3184 and his e-mail address in etopkins@topbev.com.)