Ndubuisi Egwim put his life insurance in a trust to avoid the 40% inheritance tax on death benefits and skip probate. The tradeoff: trustees control the money, not you. Whether it makes sense depends on your situation and the type of trust.
Should I put my life insurance in trust? I get asked this a lot, especially by doctors who have read my book and are thinking about life insurance to protect themselves and their family. Here's what I did for mine and why. Yes, I wrote mine in a trust. Why? Without a trust, your life insurance payout may become part of your estate when you die. If your estate has to pay inheritance tax, some of that money could be taxed too. It could be as high as 40%. Inheritance tax can be as high as 40% on the taxable part of your estate. Now, for a larger Even not too large, that could be a lot of money. Imagine 40% of a million or 40% of $500,000. So putting the life insurance in trust helps avoid this. The money can go to your trustees for your family instead of becoming part of your estate and getting taxed at 40%. It may also mean that your family doesn't have to wait for probate before the money is paid, so they could get the money sooner. But there's a trade-off, as with everything in personal finance. While the policy is in a trust, you may have to give up some control. The trustees must follow the rules of the trust. So, is life insurance policy in a trust right for you? That depends on your own situation and the type of trust. Of course, this is general financial education, not personal advice. If this helped you, share it with someone who might find it useful, and follow Moneywise Doctor for more personal finance nuggets like this.
