Life Insurance and Trusts? Just like Peas and Carrots!
Maybe Forrest Gump knew that Peas and Carrots were meant to be paired but most people do not realize that Florida has a specific statute that makes pairing your Life Insurance with a Trust… well, like peas and carrots.
Florida Statute 733.808(1) allows for the death benefit of a Life Insurance policy to be paid to a trust that is set up for the benefit of children and the death benefit of the life insurance proceeds shall be protected from the creditors of the owner of the policy. The parent of the child is owner of the policy in most cases. However many parents have simple Wills and the attorney drafts a TESTAMENTARY TRUST (a trust created AFTER death) inside of the Will. This means that any assets that go through probate will eventually get to a trust for a child’s benefit. The problem is that this could expose the death benefit to your Creditors. Remember, you don’t know who your creditors are when you pass (I.E., you are being sued for a car accident, malpractice, slip and fall on your property, etc.).
Therefore, a Trust should have language specifically excluding all death benefits from being used to pay any “debts and expenses” and that no proceeds of life insurance shall ever be probated because creditors have the right to take assets from the probate process before beneficiaries of the trust!
IF you have Life Insurance and Children and the goal is to provide for their benefit, then you should marry your Life Insurance to a Trust for the children’s benefit. Furthermore, if you leave a death benefit directly to your child then the death benefit is exposed to your child’s creditors or future ex-spouses!
Use a Protected Trust as the beneficiary for Life Insurance to protect your children (and your spouse) in case of creditors or predators.
Proper planning is about coordinating your Trust with your assets and life insurance proceeds. Like I said, peas and carrots!
Ian S. Giovinco, Esq.