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Trusts and life insurance policies

In some cases, New York residents might want to consider establishing a trust and making it the beneficiary of a life insurance policy. This might help those who have beneficiaries with special needs or that cannot manage money. A spouse or family member still receives money intended for him or her, and trusts in general keep one's wishes private and do not go through the probate process.

Special needs children often require long-term special care, but parents who wish to provide for a disabled child may want to use a special needs trust as the policy's beneficiary, as a regular inheritance of more than $2,000 could disqualify the child from needed government aid. A special needs recipient does not own the assets in this trust, but the funds provided by life insurance can be used for living expenses not covered by government programs.

Someone with a life insurance policy worth more than $1 million might not want a recipient to receive this amount as a lump sum payoff and can put the money in a trust with a spendthrift clause. This typically happens if a beneficiary cannot manage their financial affairs responsibly or could be a financial liability, and an independent trustee can decide how much money a beneficiary will receive at specified periods.

While one does have freedom when drafting a will or trust, the decisions that are made must be in accordance with New York laws. If one part of an estate planning document is not legally sound, then issues may arise that could prevent beneficiaries from receiving the assets a decedent wanted them to have. As a result, the assistance of an estate planning attorney can be advisable when these documents are being prepared.

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