February 28, 2023
Who Should Be The Beneficiary Of Life Insurance, Spouse Or Trust?
In this episode of Berry’s Bites, Chris Berry answers the question: Who should be the beneficiary of my life insurance, spouse or trust?
Estate Attorney and Advisor Chris Berry of Castle Wealth Group answers questions on retirement and estate planning every Wednesday at 1pm. Register via this link or give our office a call at 844-885-4200.
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Episode Transcript:
Who should be the beneficiary of my life insurance? Should it be a spouse or a trust?
Welcome to Barry’s Bys. Please join our host, attorney, and financial advisor, Chris Barry.
The situation. It was a husband and a wife. They have adult children, and I know in this situation we have a revocable living trust. Typically, a revocable living trust doesn’t actually own your assets. You would still own like your home, your IRAs, cash life insurance. Typically with a revocable living trust, you would remain the owner of these things, but then upon death, they would go to the trust and then the trust would then provide for the kids.
The one thing that’s a little bit different, Is IRA money? Qualified funds? Qualified funds? We always name spouse first, then the trust. And yes, we name the trust, the beneficiary of the IRAs, not the kids, cuz the kids are the beneficiaries of the trust. And a lot of times we build in some certain protections for anyone inheriting through the trust.
So that’s for qualified funds and there’s a tax reason they can do a spousal rollovers. With qualified funds. We always name, almost, always name, spouse first, then trust now for life insurance and. Non-qualified funds, like if it’s a joint account, like that’s fine joint and then trust. But life insurance, if it’s only on, on one person, we would just name the trust of the beneficiary because the spouse is the beneficiary.
But the situation would be, let’s say we have a husband and wife, the, they’re in a car accident, husband passes away, wife is incapacitated. Now that life insurance proceed is going all right to the. who’s incapacitated. Now, the kids would have to step up and create a conservatorship to manage that money.
But if we name the proceeds of the life insurance to the trust, then the trust could provide for their surviving spouse. But now one of the kids could be the successor trustee. So it’s not something that’s happens very often, but, By us naming the trust as the primary beneficiary of life insurance, it can protect against some potentially screwy situations, so life insurance, or really any other non-qualified accounts.
You should name the trust as the beneficiary. Retirement accounts like 401ks four 30 B. Typically spouse than trust. But at the end of the day, the most important thing is we want just everything flowing into the trust. This is our rule book. This is what avoids probate. This is what builds on the protections for the beneficiaries.