Life Insurance Trusts In Georgia | Set Up A LIT

Life Insurance Trusts In Georgia - What Is A Life Insurance Trust In Georgia - How To Set Up A Life Insurance Trust In Georgia

What is a life insurance trust in Georgia? 

In this article, you’ll learn about: 

  • what a LIT is and how they work
  • putting life insurance into a trust
  • types of life insurance trusts
  • how to set up a life insurance trust
  • benefits and disadvantages of LITs

Let’s dig in. 

Table of Contents

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What Is A Georgia Life Insurance Trust?

A Life Insurance Trust is a legal tool. 

You create it to own your life insurance policy

This way, the policy doesn’t belong to you personally. 

Instead, the trust owns and controls it. 

A trustee manages the trust. 

You choose this person. 

When you pass away, the insurance pays out. 

The trust gets the money. 

Your trustee makes sure your loved ones receive it, based on the rules you set. 

This setup can reduce estate taxes

It can also give you more control over how your family uses the insurance money.

Read More: Distribution Of Irrevocable Trust Assets To Beneficiaries

How A Life Insurance Trust Works

In Georgia, a Life Insurance Trust serves as a strategic legal instrument established to own a life insurance policy.

You, as the grantor, designate a trustee, who takes responsibility for managing the trust.

Using funds contributed by you, the trustee acquires a life insurance policy on your behalf.

In this arrangement, it’s the trust that holds ownership of the policy, rather than you personally.

Upon your passing, the insurance company disburses the policy amount to the trust.

The trustee, in accordance with your instructions, then distributes the proceeds to the individuals you’ve selected as beneficiaries.

A notable advantage of employing a Life Insurance Trust in Georgia is that it allows for the exclusion of the insurance payout from your estate, thus shielding it from estate taxation.

This ensures that a larger sum is retained for your loved ones.

Moreover, a Life Insurance Trust is a prudent approach for guiding the timing and manner in which your beneficiaries receive the funds.

Read More: Who Owns The Property In An Irrevocable Trust

Why Put Life Insurance In A Trust

Life insurance trusts in Georgia can help you avoid estate taxes. 

By placing your life insurance policy in a trust, the payout from the policy is not considered part of your estate. 

As a result, your heirs receive more money. 

Additionally, a trust grants you the authority to determine how the funds are utilized. 

You have the ability to establish specific guidelines for when and how your beneficiaries can access the funds. 

For instance, you may require them to reach a certain age before receiving the money. 

Moreover, a trust safeguards the insurance payout from creditors. 

In the event that your estate faces a lawsuit, the funds held in the trust are untouchable. 

In summary, a life insurance trust in Georgia offers the following benefits:

  • tax savings
  • asset protection
  • control over your legacy

Read More: How Much Money Can You Inherit Without Paying Taxes On It?

Life Insurance Trust vs Life Insurance

A Life Insurance Trust in Georgia is a legal entity that owns a life insurance policy.

By using a Life Insurance Trust, you transfer your policy to the trust, which then manages it on your behalf.

This arrangement has two advantages: 

  • it can help lower estate taxes since the policy is not considered part of your estate
  • it grants you control over how the death benefit is distributed to your beneficiaries

In contrast, with regular Life Insurance, you personally own the policy.

Upon your death, the death benefit becomes part of your estate, potentially resulting in higher estate taxes.

The money typically goes directly to your beneficiaries without the added control that a trust provides.

A Life Insurance Trust can provide tax benefits and greater control over the death benefit.

But owning Life Insurance directly is simpler but may have tax implications and less control.

Read More: Am I Entitled To My Husband’s Property If He Dies And My Name Isn’t On The Deed?

Life Insurance Trust Example

A Life Insurance Trust in Georgia is a legal tool that holds and manages a life insurance policy. 

It helps ensure financial security for Jane’s kids after she’s gone and assists in paying estate taxes. 

To create the trust, Jane transfers her life insurance policy into it. 

She designates her brother, Paul, as the trustee, responsible for managing the trust. 

Upon Jane’s passing, the trust receives the insurance payout. 

As the trustee, Paul ensures that the money covers estate taxes and distributes the remaining funds to Jane’s kids based on the trust’s predetermined rules. 

This arrangement allows Jane to provide for her children’s well-being and reduce their potential estate tax burden.

Types of Life Insurance Trusts In Georgia

Let’s look at the types of life insurance trusts that you can buy: 

  • revocable life insurance trusts
  • irrevocable life insurance trusts
  • life insurance trusts for children

Revocable LITs

A Revocable Life Insurance Trust in Georgia is a changeable or cancelable trust. 

You transfer your life insurance policy to this trust, making the trust the owner of the policy instead of you. 

The term “revocable” means you have the power to make changes. 

You can reclaim the policy, select a new trustee, or modify the beneficiaries. 

This flexibility allows you to adapt to changes in your life. 

However, because you retain control over the trust, the assets it holds may still be considered part of your estate. 

This can have an impact on estate taxes. 

While it provides the advantage of keeping your options open, it does not offer all the tax benefits of an irrevocable trust.

Read More: Does A Revocable Trust Become Irrevocable Upon Death

Irrevocable LITs

The Irrevocable Life Insurance Trust, often abbreviated as ILIT, is a type of trust that you can’t change or take back once you set it up. 

The word ‘irrevocable’ means that it’s permanent. 

When you place a life insurance policy inside this trust, it’s no longer yours. 

The trust owns it. 

The money paid from the insurance when you die doesn’t count as part of your estate. 

This is because you don’t own the policy anymore.

This can save on estate taxes. 

The ‘revocable’ part refers to a different type of trust, where you can make changes or get your property back. 

But ILIT is not revocable. 

It’s set in stone. 

This can be good for taxes, but make sure it’s what you want before you set one up.

Read More: What Happens To An Irrevocable Trust When The Grantor Dies?

Life Insurance Trust For Children

A Life Insurance Trust for children is a legal tool that parents use to set aside life insurance benefits for their kids. 

Parents create the trust and put a life insurance policy inside it. 

They pick someone reliable to manage it, known as a trustee. 

The trustee uses the insurance money to take care of the children if the parents pass away. 

The trust ensures that the insurance money isn’t wasted or spent too soon. 

It can also keep the insurance benefits from being taxed. 

When the children reach a certain age or meet specific conditions, they can receive the money directly. 

This type of trust is a way for parents to secure their children’s financial future.

How To Set Up A Life Insurance Trust In Georgia

Here are the steps to set up a life insurance trust:

  1. Choose the type of trust: Decide between an Irrevocable Life Insurance Trust (ILIT), which you can’t change, and a Revocable Life Insurance Trust, which you can alter. Most people choose ILIT to avoid estate taxes.
  2. Pick a trustee: Select someone trustworthy to manage the trust. This person will handle the insurance policy and distribute funds when needed.
  3. Create the trust document: Work with a family trust attorney to draft the trust document. This paper lays out all the rules of the trust.
  4. Place an insurance policy in the trust: Either buy a new life insurance policy with the trust as the owner or transfer an existing policy into the trust.
  5. Notify the insurance company: Inform the insurance company of the trust, and make sure the policy names the trust as the owner and beneficiary.
  6. Fund the trust: Transfer money into the trust so it can pay the insurance premiums.
  7. File gift tax returns if necessary: If you transfer money to the trust to pay premiums, you might need to file gift tax returns.
  8. Inform beneficiaries: Let the trust beneficiaries know about their interests in the trust.

Remember, setting up a Life Insurance Trust is a legal process.

So working with a trust attorney experienced in estate planning is crucial for getting it right.

Read More: Do I Need A Trust To Avoid Probate

Transferring Life Insurance Policy To Trust

To transfer a life insurance policy to a trust, you first create a trust document

This specifies how the trust will be managed. 

Then, you change the owner of the policy to the trust. 

You do this by contacting your insurance company and filling out a change of ownership form. 

Make sure the trust is the new policy owner. 

Next, you may also need to change the beneficiary of the policy to the trust. 

Again, contact your insurance company and complete the necessary forms. 

Keep in mind that if your trust is irrevocable, you can’t change it back. 

This move can have tax benefits and help protect your assets. 

However, it’s important to think through and understand all the implications before making the transfer. 

It’s also a good idea to work with an attorney or financial advisor who specializes in estate planning. 

They can help ensure that the transfer:

  • aligns with your goals 
  • complies with the law

Read More: How To Put House In Trust With Mortgage

Transfer For Value Rules

Transfer for Value Rules apply to life insurance policies. 

These rules say that if you sell or transfer your life insurance policy to someone else for something in return, the policy’s death benefits may be subject to taxes. 

Normally, life insurance payouts are tax-free. 

But, if the policy is transferred in exchange for money or other benefits, the tax-free perk might be lost. 

There are exceptions. 

The rules don’t apply if you transfer the policy to:

  • the insured person
  • a partner of the insured
  • a partnership where the insured is a partner
  • a corporation where the insured is a shareholder or officer

Being aware of these rules is important for smart financial planning.

Read More: Who Needs A Trust Instead Of A Will?

Georgia Life Insurance In Trust Pros And Cons

Let’s look at some benefits and disadvantages of having a life insurance trust. 

Benefits Of A Life Insurance Trust

A Life Insurance Trust offers tax benefits. 

By removing the policy from your estate, it can reduce estate taxes. 

It lets you control how your beneficiaries use the funds. 

You can set rules on when they receive the money. 

The trust can protect the insurance proceeds from creditors. 

This ensures your beneficiaries get what you intend for them. 

It can also be useful in special situations like providing for a special needs dependent. 

The trust shields the proceeds from being counted as assets, which might disqualify them from government assistance.

Read More: Does Your House Have To Be Paid Off To Put It In A Trust

Disadvantages Of Putting Life Insurance In Trust

When you put life insurance in a trust, you lose control. 

This means you can’t change beneficiaries or terms without a hassle. 

Setting up the trust costs money, as you need legal documents. 

Annual maintenance fees can add up. 

Trusts can be complex, and errors can cause tax issues. 

If you transfer an existing policy, there’s a three-year look-back period. 

If you pass away within those three years, the policy might still count towards estate taxes. 

Choosing a trustee is critical; a poor choice can mismanage the trust. 

The trust needs separate tax filings, which takes time and effort. 

Lastly, if laws change, the trust may not offer the same benefits.

FAQs About Life Insurance Trusts In Georgia

Here are some common questions our clients ask us about Life Insurance Trusts. 

Should A Life Insurance Policy Be In A Trust?

Yes, placing a life insurance policy in a trust can be beneficial. 

When you put your policy in a trust, it won’t be part of your estate. 

This means your loved ones could avoid estate taxes on the payout. 

A trust also gives you more control over how the insurance money is used. 

For example, you can set rules on when your beneficiaries receive the funds. 

This can protect them from spending the money too quickly. 

It’s important to think about your goals and talk to an expert to set up the trust correctly.

Read More: What Happens If A Beneficiary Does Not Claim Their Inheritance?

What Is A Major Problem With Naming A Trust As The Beneficiary Of A Life Insurance Policy?

One major problem with naming a trust as the beneficiary of a life insurance policy is the lack of flexibility. 

Once you name a trust as the beneficiary, you set strict rules on how the policy’s proceeds get distributed. 

This means that if circumstances change, like family needs or financial situations, adjusting these rules can be difficult or impossible. 

Additionally, setting up a trust involves legal fees and administrative tasks, which can make the process expensive and time-consuming. 

Naming a trust requires careful planning to ensure it meets your long-term goals and accommodates any future changes.

Read More: How Long Can You Keep An Estate Open After Death

Is Life Insurance Part Of An Estate After Death?

Yes, life insurance can be part of an estate after death. 

If a person names their estate as the beneficiary of the life insurance policy, the proceeds go into the estate. 

If the person names specific individuals as beneficiaries, the money goes directly to them, bypassing the estate. 

It’s important to choose beneficiaries wisely to avoid estate taxes and probate delays. Naming the estate as the beneficiary might also affect creditors’ claims. 

Selecting individuals keeps the money separate from the estate, typically making it tax-free and quickly accessible.

Read More: What Are My Rights If My Name Is Not On A Deed But Married

Set Up A Life Insurance Trust In Georgia

If you want help from a trust law firm, fill out the form below. 

At The Hive Law, we understand the importance of:

  • protecting your hard-earned assets 
  • ensuring your family’s future
  • not losing everything to creditors and lawsuits
  • properly (and legally) distributing assets 

We only accommodate a limited number of clients each month.

So don’t miss your opportunity to work with our trust fund lawyers.

Benefits of our trust services:

  • Tailored solutions to fit your unique needs and goals
  • Expert guidance in navigating complex tax and legal matters
  • Preservation of your wealth for future generations
  • Streamlined asset distribution according to your wishes

Avoid the pitfalls of inadequate estate planning strategies:

  • Creditors seizing your assets
  • Lawsuits jeopardizing your family’s financial security
  • Family disputes over inheritance
  • Costly and time-consuming probate processes

Talk soon.

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