Funding life insurance to your trust can involve the change of beneficiary designation of a policy, the transfer of ownership of a policy, or both. The beneficiary designation is generally changed to name the trust as the primary or contingent beneficiary. A change of beneficiary of the policy to the trust can be accomplished using the form available here. The insurance company will typically send forms that it requires for your signature following receipt of the beneficiary designation. Changing the beneficiary to the trust will allow the insurance proceeds to receive the benefits of estate tax planning, creditor protection, bloodline protection, and other objectives embodied in the trust.
Generally, if the trust is not the the primary beneficiary, only a spouse should be named the primary beneficiary. If you are considering a primary beneficiary other than your trust or your spouse, consult with an estate planning attorney regarding the disadvantages, and how your trust can be changed to permit the objective you are considering.
Ownership of a policy is usually changed when the policy has a cash value or an accelerated death benefit, such for disability, nursing home confinement or long-term care. Transferring ownership of the policy into the trust, means that the successor trustee can access the cash value or other rights under the policy if the grantor is ill, disabled, incompetent or incapacitated.
If there is no cash value in the policy, it may still be a good idea to transfer the ownership of the term policy to the trust. Many term policies allow the policy to be converted to a whole life policy without the need to verify insurability. In the event of the grantor’s incapacity, if the term policy is owned by the trust, the trustees could exercise the right to convert the policy to a whole life policy.
However, before changing ownership of the policy, review the policy or consult with your insurance agent or an estate planning attorney. Some rights available to the owner of the policy may be lost by transferring ownership of the policy, (hence no form available here).
Ownership of a policy is changed by completing the insurance company’s change of ownership form, which can be obtained from the insurance company, or attaching a change of ownership instruction letter signed by the policy owner and delivered to the insurance company. If the policy requires that a change of ownership form requires a witness or notary, make certain that the appropriate formalities are followed.
If you have any questions whether or not you should be changing the ownership of your life insurance policies, consult with your estate planning attorney.
Many insurance companies may request verification that the trust is valid and actually in existence. Your estate planning attorney can assist you with the documentation that is required to satisfy the requirements of each institution. Generally, including a copy of an Affidavit of Trust or the pages of the trust reflecting the trust name, current trustees, and the signatures may satisfy this requirement. In some cases the insurance company will request an attorney’s certification.
It is very rare for an insurance company to require the original policy to be returned. However, should this request be made, it will be necessary to include the original policy, or a lost policy affidavit.
Group Life Insurance Policies
Many employers provide group life insurance as an employee benefit. If your employer provides such benefits, contact the company human resources department for the appropriate forms necessary to change the beneficiary. Generally, the ownership of a group policy cannot be changed, although most group policies will allow the beneficiary designation to be changed to name the trust. Again, the company human resource department can provide you with the available options under your group policy.
