Exploring Life Insurance Policy Ownership: Who Should Own Your Policy?

Life insurance is a crucial element of a comprehensive estate plan, offering financial security to your loved ones after you’re gone. However, one often overlooked aspect is determining who should own your life insurance policy. As an estate planning attorney with over 20 years of experience, I, Jonathan Alexander, am here to guide you through the choices and considerations involved in life insurance policy ownership. Let’s delve into the details.

 Key Players in a Life Insurance Policy

Every life insurance policy involves three main roles:

1. The Insured: The person whose life is insured. This individual undergoes medical exams and typically pays the policy premiums.

2. The Owner: This person has control over the policy during the insured’s lifetime, including the power to change beneficiaries, surrender, sell, or gift the policy.

3. The Beneficiary: The individual or entity (such as a trust, corporation, or partnership) designated to receive the policy proceeds upon the insured’s death.

Understanding the dynamics between these roles is essential for making informed decisions about policy ownership.

 Common Ownership Options

 The Insured as the Owner

The simplest arrangement is where the insured is also the owner. This setup provides the insured with full control over the policy, including the ability to change beneficiaries or make investment decisions if applicable. For instance, if I own a policy on my life, I can name my son as the beneficiary and retain the right to alter this designation if circumstances change.

 Spousal Ownership

In some cases, having a spouse as the policy owner can offer strategic advantages, particularly concerning creditor protection. For example, if my wife owns the policy on my life, she controls it and can name herself or our children as beneficiaries. This setup can safeguard the policy from creditors targeting the insured.

 Children as Owners

Adult children can also be designated as policy owners. This arrangement can involve multiple children, although it may complicate decision-making since all owners must agree on actions such as cashing in the policy or changing beneficiaries. Creating an entity like an LLC or a partnership with one child as the manager can streamline this process while ensuring fair beneficiary distribution.

 Irrevocable Life Insurance Trusts (ILITs)

An irrevocable life insurance trust (ILIT) is a sophisticated estate planning tool often utilized by high-net-worth individuals. In this case, the trust owns the policy, and a trustee manages it. The primary benefits include:

1. Estate Tax Savings: Keeping the policy proceeds out of the insured’s estate for federal estate tax purposes if the trust is established at least three years before the insured’s death.

2. Creditor Protection: Shielding the policy from claims by the insured’s creditors.

3. Spendthrift Protection: Ensuring that a trustee manages the proceeds for beneficiaries who may not be financially responsible.

 Making the Right Choice

Choosing the right policy owner depends on various factors, including your financial situation, estate planning goals, and family dynamics. Here are some considerations:

– Control: Who do you trust to make decisions about the policy?

– Tax Implications: How will ownership affect estate taxes?

– Creditor Protection: Do you need to protect the policy from creditors?

– Family Dynamics: How will different ownership structures impact family harmony?

At Alexander Legacy Law, we help you navigate these choices to create a plan that aligns with your unique needs and objectives.

 Call Today

Life insurance policy ownership is a critical decision that can significantly impact your estate plan. For personalized guidance and to explore the best options for your situation, contact me, Jonathan Alexander, at Alexander Legacy Law. Schedule a confidential consultation today by calling 949-334-7823. Let’s work together to secure your legacy and provide peace of mind for you and your loved ones.