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Use a revocable or irrevocable trust for life insurance proceeds

On Behalf of | Jun 18, 2015 | Trusts, Trusts

Many Massachusetts families purchase life insurance policies to provide for their minor children if they pass away. However, a minor child cannot inherit the proceeds. Without a revocable or irrevocable trust to hold the proceeds upon death, family members will have to spend additional time and money to be appointed as the guardian of the minor child in order for the funds to be distributed.

Some would argue that creating a trust is unnecessary because under the Uniform Transfers to Minors Act (UTMA), an adult can be named custodian of the property until the minor child reaches the age of maturity, at which point all of the money is given to the child. The problem with relying on this act is that an 18 or 21 year old may not possess the self-discipline or maturity to manage the money in the way his or her parents would prefer. With a trust, Massachusetts parents can control when and how much of the proceeds are distributed to the child.

The trustee will administer the trust and make distributions in accordance with its provisions. Parents receive peace of mind in knowing that a young adult who may be easily overwhelmed or taken advantage of after receiving a large sum of money all at once will not squander the money. A special needs trust can be created for a child with a disability, which will not only allow control over distributions but also allow the child to continue to qualify for government benefits, if necessary, since there are income restrictions.

Whether a revocable trust or an irrevocable trust would be more advantageous depends on the family’s unique circumstances. Each type of trust has its own benefits and pitfalls. A thorough review of the financial situation and a discussion about what the parents hope to accomplish will help an estate planning attorney advise them.

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


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