Berman & Asbel, LLP

What's the benefit of a life insurance trust for my kids?

Life insurance costs a whole lot less when you are younger than when you are older. A lot of people in Pennsylvania might never give that reality much thought when they're young. But there can be some distinct advantages in doing so, especially if you happen to be a young couple starting a family.

There are so many things to plan for when children are in the mix. Perhaps one of the biggest ticket items out there is the cost of education after high school. Not everyone goes on to get a college degree, but that doesn't mean you don't want to plan for the expense. And taking out a life insurance policy with a benefit that covers that anticipated cost ensures that your children will have the opportunity, even if you aren't alive to help out.

But is having that insurance enough? Is there something more that you could do to make sure that those benefits go to the purpose for which you intend them? The answer is yes.

You could just name your children as the beneficiaries of a particular policy. But if that's all you do, and you die while your children are still minors, a guardian might have to be named and that can wind up costing time and money.

You could deal with the matter by creating a Uniform Transfers to Minors Act account. A custodian would supervise the money to begin with. But when the children hit the age of adulthood in your state, perhaps 18, whatever cash is in the account is theirs. Will they be responsible enough to use the money for education?

Rather than leave such a large lump sum to the vagaries of the naïve, consider creating a life insurance trust. Putting the funds in trust allows you to say exactly how they should be used. A trustee that you name makes sure that your wishes are met.

As part of an overall estate plan a trust also allows you to keep control of funds if college turns out not to be in the cards for your child. Distribution of remaining assets can be set to occur when beneficiaries reach certain ages.

Use of such tools doesn't require great wealth. It does require good planning.

Source: NerdWallet, "How and Why to Set Up a Life Insurance Trust for Your Children," Barbara Marquand, June 15, 2015

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