The ownership of your life insurance policy can have a substantial impact on how this asset will be handled. Choices include:
* Own the policy yourself. If you’re the owner of an insurance policy on your life, you’re in control. You’ll make any decisions that are necessary (payment of flexible premiums, for instance) and you’ll have access to the cash value, if you choose permanent life insurance.
However, ownership of a policy on your own life puts the proceeds into your taxable estate.
* Have another individual own the policy. If an adult son or daughter owns a policy insuring your life, the death benefit won’t be included in your taxable estate. Loss of control will be an issue, though, and the policy may be exposed to your child’s creditors and to a son- or daughter-in-law, in case of divorce proceedings.
* Have an irrevocable trust own the policy. This approach can shelter life insurance from estate tax as well as creditors. As long as the trustee is a responsible party, you can feel comfortable that the proceeds (and any cash value) will be handled carefully.
Creating a trust to hold life insurance will involve some expense while arranging for premium payments requires expert advice. Nevertheless, you may decide that the benefits make the effort and expense worthwhile.