What are the pros and cons of naming an individual rather than my Testamentary Trust as beneficiary to my life insurance, IRAs, and annuities?

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What are the pros and cons of naming an individual rather than my Testamentary Trust as beneficiary to my life insurance, IRAs, and annuities?

Will my beneficiaries receive life insurance benefits tax free and not subject to creditors? There was something about if I was not the owner of my life insurance affecting outcome. Confusing.

Asked on November 21, 2011 under Estate Planning, Oklahoma

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

First, most attorneys who practice Wills and trusts never have a life insurance policy as an asset of one's estate. The reason is that life insurance proceeds are tax free proceeds for income tax purposes.

Usually a specific individual gets the life insurance policy for the simple reason that if the deecased person's estate gets the insurance policy, the amount is added to the estate and increases the amount of any estate tax possibly.

IRAs and annuities are a different matter. Typically they are included in the Will or trust of a person and upon the person's passing, there is a stepped up basis for any stocks of bonds that a beneficiary might receive.

I suggest that you consult with an attorney who practices Wills and trusts for any further questions that you might have.


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