Further Estate Considerations: A Trust to Manage Assets

You will recall that an estate owner's family will be the recipient of capital from four sources in addition to his government programs: his personal assets, real estate, business assets, and life insurance. We have found that most people - husband and wife alike - would prefer to have all these assets in one place and under one management after the estate owner's death.

One popular estate planning arrangement for accomplishing this objective involves a simple two-step process.

An Inter-vivos Life Insurance Trust
The estate owner creates an inter-vivos (living) trust. He designates the trustee as beneficiary of the policies. The trustee may or may not hold the policies. The insured, however, maintains complete control over them, including the right to change the beneficiary or to exercise any of the other privileges in the policy while he is alive.

The trust agreement, prepared by the estate owner's attorney, incorporates the insured's wishes with respect to the management of the proceeds, disposition of principal and income and also sets forth a great variety of discretionary powers granted to the trustee. At the estate owner's death, the insurance proceeds are paid to the trustee, who carries out the terms of the trust agreement.

During the insured's lifetime, the trust is revocable; the estate owner may terminate it at any time, or he may alter its terms to conform with changing conditions in his family situation. At his death, the trust becomes irrevocable.

A Pour-Over Provision Under the Will
Under the terms of his will, the estate owner directs that after his estate has been settled, including the payment of liabilities, part or all of his probate assets shall be poured into the life insurance trust which will already have recevied the insurance proceeds directly from the life insurance companies.

This is known as a 'pour-over provision' and, providing it meets the legal requirements of state law, creates an excellent method whereby other income-producing property can be managed for the family's benefit in the same manner and under the same trust vehicle as the life insurance proceeds.

The surviving spouse may or may not be given privileges to invade the trust principal. Whether or not she should have the power of invasion will depend on the wishes of the parties involved. In any instance, the trustee is always given the right to use principal freely for the important needs of the family.