Understanding Life Insurance Trusts
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What is the difference between revocable and irrevocable life insurance trusts?
For many people, an insurance trust is the perfect place for Mortgage Life Insurance proceeds to go when they're paid out. A trust document could spell out how Mortgage Life Insurance proceeds are distributed, and this allows for greater detail than a life insurance application beneficiary designation.
There are two types of Mortgage Life Insurance trusts you can choose from:
- Revocable trusts: Revocable trusts are trusts that you (the trustor) still have power over. You can be the trustee and you can name the secondary trustee. You also have the power to move assets around within the trust and change the terms within. While assets in the revocable trust are considered trust assets, this type of trust does not protect assets against the claims of creditors.
- Irrevocable trusts: When you have an irrevocable trust, you (the trustor) cannot be trustee and have no say in how trust assets are handled. You are permanently giving up control of the assets, but this does remove them from claims of creditors.