Mistake 1: Naming a Minor Child as the Beneficiary
A young child cannot sign for a large payout. Once the child’s property passes $25,000, a Georgia court has to appoint a conservator before the money can reach the child. Under O.C.G.A. § 29-3-1, a parent can receive a minor’s property without that step only when the minor’s total personal property is $25,000 or less.
That $25,000 limit counts everything the child already owns, not just the policy. A savings account or a gift from a grandparent uses up part of it.
The fix is to have the trust hold the policy and pay the child on the schedule you set. Money held in a trust, or by a custodian under Georgia’s Transfers to Minors Act, does not count toward the $25,000 limit. No court is involved.
Mistake 2: Leaving the Wrong Name on the Policy
This mistake shows up in three forms.
Naming your estate. Under O.C.G.A. § 33-25-11(a), life insurance paid to your estate becomes part of the estate. It then goes through probate. It also loses the protection from your creditors that a named person’s policy has.
Never updating an old form. Georgia has no law that takes your ex-spouse off your life insurance after a divorce. If the form still lists your ex, your ex can be paid. Our guide on how to update beneficiary forms after divorce walks through the steps.
Setting up the trust but not the policy. The trust should be both the owner and the beneficiary of the policy. If the insurer’s records still show you as the owner, you hold the policy, and the trust does nothing.
Mistake 3: Skipping the Yearly Withdrawal Notices
To pay the premium, you give money to the trust each year. A gift to a trust is usually not a “present interest” gift, so it does not qualify for the annual gift tax exclusion under 26 U.S.C. § 2503(b). The exclusion is $19,000 per person in 2026.
A withdrawal notice, often called a Crummey letter, fixes that. It gives each beneficiary a short window to take the gift out. That right is what makes the gift count as a present interest.
If the notices are never sent, the gift may not qualify. The amount can then count against your lifetime exemption and may need a gift tax return.
The fix: Every time a gift goes into the trust, the trustee sends each beneficiary a written notice and keeps a copy. Put the dates on a calendar so it does not depend on memory.
Mistake 4: Serving as Your Own Trustee or Keeping Control
Federal law counts a life insurance death benefit in your taxable estate if you hold any “incident of ownership” when you die. That is the rule in 26 U.S.C. § 2042. Changing the beneficiary, cancelling the policy, borrowing against it, and assigning it are all incidents of ownership.
If you name yourself trustee, you may hold those powers. The trust then fails at its main job.
This is a federal tax rule. Georgia law does not forbid you from serving. The tax result is the reason not to.
The fix: Name a trustee other than you. Then leave the policy alone. Do not call the insurer to change the beneficiary or take a loan.
Pick a trustee who can handle a long job. A life insurance trust may sit for many years before it pays out. A trusted relative, a friend, or a professional trustee are all common choices. Many families also name a backup.
Mistake 5: Moving an Existing Policy In Too Late
If you transfer a policy you already own into the trust and die within three years, the death benefit is pulled back into your taxable estate. That is the 3-year rule in 26 U.S.C. § 2035(a). The clock starts on the day of the transfer. Our guide to the 3-year rule for a life insurance trust covers it in full.
A new policy bought by the trust itself is not covered by this rule, because you never owned it. If you are healthy enough to qualify for a new policy, having the trust apply for it avoids the 3-year wait.
One trap catches people who want to avoid the wait. If you apply for a policy in your own name and plan to move it into a trust later, the policy is already yours. Moving it in later counts as a transfer, and the 3-year clock starts. Have the trust apply for and own the policy from the first day instead.
The wait is also a cost issue. Our irrevocable life insurance trust cost breakdown shows how the 3-year rule changes what a transfer really costs.
Mistake 6: Buying a Policy the Trust Cannot Keep Paying For
The trust owns the policy, so the trust has to pay every premium. Its only money is what you give it. If the premium is larger than the gifts you plan to make, the trust runs short.
Bigger gifts may need a gift tax return and use part of your lifetime exemption. Smaller gifts can let the policy lapse. A lapsed policy leaves the trust with nothing to pay out.
Check the policy type too. A term policy ends on a set date. If you outlive it, the trust owns a policy that pays nothing. Ask your agent whether the policy will still be in force for as long as you expect to live.
The fix: Write out the premium schedule before you sign. Then keep a clean paper trail. You gift money to the trust’s own bank account, and the trustee pays the insurer from that account.
Mistake 7: Picking the Wrong Kind of Trust
A revocable living trust does not get the tax benefit. Naming it as your beneficiary keeps the money out of probate. But you still own the policy, so the death benefit is still counted in your taxable estate. Only a trust that owns the policy can remove it. Our page on which assets should stay out of a trust explains why life insurance you own is handled differently.
You may also not need one. Georgia has no estate tax. The federal exemption is $15,000,000 per person, or $30,000,000 for a married couple, in 2026. Add the death benefit to everything else you own. If the total is well under that number, a life insurance trust may not save any tax.
A trust can still make sense for control. It can decide when and how your heirs receive the money. That is a different reason from tax, and it is worth weighing on its own.
Mistake 8: Treating It Like a Trust You Can Change Later
Most life insurance trusts are irrevocable. After you sign, you generally cannot take the policy back, change the beneficiaries, or borrow from it.
Georgia does give some limited ways to change an irrevocable trust. A court can approve a change under O.C.G.A. § 53-12-61 in certain cases, including when you and the beneficiaries agree. A trustee may also be able to move the assets into a new trust with updated terms under O.C.G.A. § 53-12-62. That is called decanting. Both routes come with conditions, so ask an attorney whether either one fits.
Both routes take work and paperwork. Plan as if the trust is permanent. Read the terms carefully before you sign.
What to Check on a Life Insurance Trust You Already Have
If you already have a life insurance trust, six questions catch most of these mistakes:
- Who owns the policy? The insurer’s records should show the trust, not you.
- Who is the beneficiary? It should be the trust.
- Who is the trustee? It should not be you.
- Where are the notices? There should be a copy for every gift made.
- Who pays the premium? The trust’s own account should pay it.
- When did the policy move in? If it was less than three years ago, note the date.
A trust package review checks all six against your actual documents. If the trust needs to be built or rebuilt, that work falls under our irrevocable trust service. For the wider picture, see estate planning in Georgia.
