Life Insurance as Asset Protection

Life insurance can be used as a great tool for protecting your assets. Set up irrevocable life insurance trust, and put in money by way of gift. The insurance trust buys a permanent insurance policy (not term insurance) on your life, and builds a value. Through this mechanism you can create a structure that provides valuable protection from future claimants, for example, malpractice claimants if you are a physician. Not only does this technique protect your assets, but, if you have a spouse and children, it also caters to real family needs. Now you have a valuable asset inside a trust, which has a measure of protection as an irrevocable trust, with financial planning and valid non-asset protection reasons to do it and financial planning. Further down the line you even have relatively easy access to the money inside.

• Set up the trust. It must be irrevocable (not able to be changed), because it shows that it is not fraudulent. If you do this correctly, there will be no way a malpractice claimant can have access to the funds in this trust. You will only have a problem if there was a claim you already knew about when creating the trust.
•  Once in the trust, the money can grow in the life insurance trust. It’s a cash value policy.
• You are protected to the value of the cash in the policy. The key is that its not yours anymore; the trust owns it.
• Every year put money into the trust to pay the insurance premiums. This is different than other insurance policies, because in this case, you want to put in as much money as you can, while with other insurance policies, you want to stretch the premiums out as long as possible. The more money is in the trust, the more of money is protected from future claimants.
• Because it is an irrevocable trust, your spouse, if they are a co-trustee, should be able to take money out of the policy as the trustee (borrow against the policy), and then an independent trustee can make a distribution to them. You do not want to make your spouse the only trustee unless you limit their rights to an ascertainable standard, because you don’t want to make her responsible for making her own distributions to herself. Borrowing against the policy is a simple way to access the money inside the trust if need be.

The above is a summary of a radio show on MMFN Money Matters Financial Network, on June 30, 2008 with host Gary Goldberg, of Gary Goldberg Planning Services, Inc. in Montebello, New York, and his guest Martin M. Shenkman, Esq. an estate planner in Paramus, New Jersey. Listen to the audio clip of this segment on www.laweasy.com.