Thursday, December 09, 2004
Other uses of Testamentary insurance trusts
Testamentary trusts have a multitude of uses. One valuable and creative use of testamentary insurance trusts, is in the protection of support payments.
There are many more uses for a testamentary trust. One of the main uses of testamentary insurance trusts will be where it is intended that substantial insurance proceeds will be paid for the benefit of children or persons who are otherwise vulernerable.
Let's say that you are the owner of an insurance policy on your life in the amount of $500,000.00. For many people, this amount of insurance or more, is not unusual. It may be your intent that the insurance proceeds should be paid to your children when they are older, say when they reach 21, 25, or even 30. If you were to die tomorrow, you would want the money to be held in trust for them, until they are old enough to look after it themselves. You may want the Trustee to have the authority to use the income or the capital, or both for the education, maintenance or other benefit of the children during their lifetimes and to pay the balance to them when they attain a certain age.
Alternatively, you may have aging parents. You may wish the Trustee to hold, invest and use the money for the benefit of your parents during their lifetimes and to pay them the income and so much of the capital as your Trustee deems advisable. The Trustee can be authorized to use the money for a variety of purposes, to ensure that your parents are comfortable and maintained in a good lifestyle.
The Testamentary Insurance Trust can be set up, outside of your will. The beneficiary of the life insurance policy will be the Trustee, from time to time of the trust.
If you use such a trust and the insurance proceeds are paid directly to the trustee, then the funds will not form part of your estate. The funds will be protected from creditors of the estate. No Estate Administration Tax will be payable on these funds. This will be a substantial savings to your estate. In Ontario, Estate administration Tax on all amounts after the first $50,000.00 is 1 1/2% - so on $500,000.00 your estate would have a savings of $7,500.00.
There is also great privacy. Trust documents of this kind are personal in nature and are not likely to become public documents. A will which is submitted to the Court for a Certificate of Appointment of Estate Trustee with a Will, does become a part of the public record. On privacy principles alone, you may wish to create a Testamentary Insurance Trust.
There are many more uses for a testamentary trust. One of the main uses of testamentary insurance trusts will be where it is intended that substantial insurance proceeds will be paid for the benefit of children or persons who are otherwise vulernerable.
Let's say that you are the owner of an insurance policy on your life in the amount of $500,000.00. For many people, this amount of insurance or more, is not unusual. It may be your intent that the insurance proceeds should be paid to your children when they are older, say when they reach 21, 25, or even 30. If you were to die tomorrow, you would want the money to be held in trust for them, until they are old enough to look after it themselves. You may want the Trustee to have the authority to use the income or the capital, or both for the education, maintenance or other benefit of the children during their lifetimes and to pay the balance to them when they attain a certain age.
Alternatively, you may have aging parents. You may wish the Trustee to hold, invest and use the money for the benefit of your parents during their lifetimes and to pay them the income and so much of the capital as your Trustee deems advisable. The Trustee can be authorized to use the money for a variety of purposes, to ensure that your parents are comfortable and maintained in a good lifestyle.
The Testamentary Insurance Trust can be set up, outside of your will. The beneficiary of the life insurance policy will be the Trustee, from time to time of the trust.
If you use such a trust and the insurance proceeds are paid directly to the trustee, then the funds will not form part of your estate. The funds will be protected from creditors of the estate. No Estate Administration Tax will be payable on these funds. This will be a substantial savings to your estate. In Ontario, Estate administration Tax on all amounts after the first $50,000.00 is 1 1/2% - so on $500,000.00 your estate would have a savings of $7,500.00.
There is also great privacy. Trust documents of this kind are personal in nature and are not likely to become public documents. A will which is submitted to the Court for a Certificate of Appointment of Estate Trustee with a Will, does become a part of the public record. On privacy principles alone, you may wish to create a Testamentary Insurance Trust.
posted by Robert at 3:19 PM
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