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Life Insurance

When it comes to estate planning, coordinating ownership title and beneficiary designations with your revocable living trust and the overall plan is essential if you actually want to avoid probate. In this video, Jeff explains the reasoning behind why your revocable living trust should be the primary beneficiary of life insurance… not your spouse.

Well if I name my spouse and name the trust as the contingent beneficiary, is that okay? I hear that all the time and here is why.

Who should be the beneficiary of your life insurance when you have a revocable living trust? This ends up being way more of an issue than it needs to be especially when you’re dealing with HR departments and it’s your group life insurance.

Now let me start with a little bit of a caveat, there are some governmental HR departments where your spouse has to be the primary beneficiary on your life insurance and there is nothing you can do to change it. But those cases are pretty rare when you are talking about my general clients.

When you have a revocable living trust, and its spouses so it is a joint revocable living trust, if you have a life insurance policy you should be naming the trust to be the beneficiary. Well, why? Especially since we also give a recommendation of making your spouse the beneficiary of IRAs and 401Ks and other tax-deferred accounts.


Let me explain why. You always start with the presumption that your accounts should be in the name of the trust, that other accounts if for some reason you don’t want to move them into the trust, it is pay-on-death to the living trust. And your revocable living trust becomes your entire estate plan. Everything is laid out. Your plan is in one compact revocable living trust so everything should be directed there.

There needs to be some reason for the trust to not be the primary pay-on-death beneficiary. When it comes to life insurance you have to step back and ask, is there any detriment to naming the trust rather than the spouse? Well depending on the state you are in it is a minute one. In North Carolina, life insurance proceeds that go to a spouse are not subject to creditor claims, bankruptcy, lawsuits, or any of that stuff.

Creditor Issues

Most of my clients don’t come to me and start out having huge creditor issues because if they did they would be talking about setting up a trust to avoid the creditors. Well okay, that is a different discussion. It’s not really estate planning it is protecting yourself from lawsuits. So we don’t typically get that.

The other thing is if you have creditor and potential lawsuit issues and you want to rap things up solidly, then we are talking about irrevocable trusts we are not just talking about naming a spouse as a beneficiary.

There is no tax consequence to naming the trust as the primary beneficiary on a life insurance policy. With an IRA or a 401k, there is.

Well if I name my spouse and name the trust and the contingent beneficiary is that okay? I hear that all the time and the fact is it isn’t. And here is why …

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