WEALTH
My reason for this is the same as why I advise clients not to have any property investments in their own name but rather in their trusts . When life insurance pays out to an individual , it becomes a big asset in the name of that individual , which is what we try to avoid . Read on to see why directing your life insurance to your Family Trust is a game-changer .
Navigating life insurance in your estate planning
Life insurance is often taken out to create liquidity in an estate or , in other words , make cash available to pay for costs on death . Most people don ’ t want their spouse or family to have to sell assets ( and possibly become distressed sellers ) to make enough cash available to pay for costs such as estate duty , capital gains tax , executor ’ s fees , and other expenses in the estate .
One of the main purposes of trust structuring is estate planning and to prevent all these costs on death . If you structure your assets correctly in your Family Trust and your investment properties in a property company or companies under your Holdings Trust , you can avoid costs like estate duties , transfer fees , etc . If structured correctly , you will have a very small estate , and you won ’ t need much liquidity in your estate .
Where should life insurance payouts go ?
To avoid the costs mentioned above , any life insurance you take out on your life should rather pay out to a Family Trust . And if you have taken out life insurance on someone else , you rather want it to pay out to the Family Trust than to you . When life insurance is paid out to the Family Trust , distributions can be made to any of the trust ’ s beneficiaries that may require funds .
The life insurance policy that pays out to your Family Trust can be paid as a loan from the Family Trust to your property company ( via your Holdings Trust ) to settle mortgage bonds or create liquidity in your property company or companies .
My preference , if possible , is to keep the bonds open in the property company or companies when you pass away and to pay the funds you have made available through life insurance in your Family Trust into the access bonds to reduce your outstanding debt on which interest is charged .
This can reduce your monthly bond payments , improving cash flow and keeping funds available to buy more properties or repay your loan to your Family Trust ( via your Holdings Trust ).
Sadly , most people are unaware of the benefits of having your life insurance in a trust .
98 REI MAGAZINE SEPTEMBER 2024