Lots of people have life insurance policies as a form of protection for their family’s future when they pass away. Typically, the beneficiaries of these policies are the heirs and/or spouses of the insured. The money is paid directly to those beneficiaries, without having to go through probate.
But do you have to do this? Or can you have the money pay out in some other fashion so that it doesn’t directly go to an individual?
You could choose a trust to hold the proceeds of your insurance
One option is to choose a trust. Say you want control over what your heirs do with the money. Maybe you want them to use the life insurance money for education, not just for daily expenses. You could set up a trust that only allows for educational use until your heir graduates. The policy would then fund the trust on your passing, and your heirs could use that money as you instructed. That ultimately gives you more control of how the wealth you pass forward is spent.
There are some downsides to doing this, however, and some believe it’s better to pick individuals, not trusts, as beneficiaries. One of the main downsides is that putting money in the trust can, in some cases, increase what your estate ends up paying in taxes. This means more of your money goes to the government and less of it goes to your heirs.
This is clearly not what you want, so you have to carefully consider if this tactic will work based on your own asset levels. Throughout this process, take the time to carefully consider all of the legal options at your disposal.