Testamentary trusts, established through a will and taking effect after death, present a unique situation when considering funding ongoing expenses like long-term care insurance premiums. While technically possible, utilizing a testamentary trust to directly pay long-term care insurance premiums requires careful planning and consideration of various legal and financial factors, as the trust isn’t active during the insured’s lifetime. Approximately 70% of individuals over the age of 65 will require some form of long-term care, making pre-planning with resources like insurance and trusts critically important; however, the timing of funding from a testamentary trust is post-death, creating logistical hurdles.
What are the limitations of using a testamentary trust for current expenses?
A testamentary trust doesn’t exist until the grantor’s death, meaning it cannot be used to pay for expenses *before* that time. Long-term care insurance premiums are typically paid monthly, quarterly, or annually during the insured’s life. Therefore, the trust cannot directly cover these premiums while the insured is still alive. However, the will can direct that funds be allocated to a separate, existing living trust or to designated individuals to pay these premiums until the testamentary trust is funded. It’s also important to remember that the assets within the testamentary trust will be subject to estate taxes, potentially reducing the net amount available for premium payments. According to the American Council on Life Insurance, the average annual cost of long-term care insurance can range from $2,000 to $5,000 or more, depending on the coverage level and the insured’s age and health.
How can a will ensure long-term care insurance continues after death?
The most common approach is to include a provision in the will directing the executor to use estate funds to continue paying the long-term care insurance premiums for a specified period or until the policy matures. This can be structured as a specific bequest, where a certain amount of money is earmarked for this purpose, or as a general direction to the executor. Alternatively, the will can direct the creation of a separate living trust funded with estate assets, and this trust can then be responsible for paying the premiums. This allows for ongoing management of the funds and ensures that the premiums are paid even if the estate administration is delayed. It is vital that the will clearly outline the duration of premium payments, the specific insurance policy to be covered, and any conditions or limitations.
What happened when Mr. Abernathy didn’t plan ahead?
Old Man Abernathy, a proud but stubborn carpenter, believed estate planning was for “other people.” He had a solid long-term care insurance policy, but his will was a simple, handwritten document leaving everything equally to his two children. When he passed away unexpectedly, his children were shocked to learn that the insurance premiums were due within weeks. The estate was tied up in probate, and accessing funds to pay the premiums was a nightmare. Eventually, they had to take out a high-interest loan to keep the policy active, eating away at their inheritance. Had Mr. Abernathy included a provision in his will directing the executor to pay the premiums from estate funds or established a living trust to manage the payments, his children would have avoided significant financial hardship and emotional distress. It was a stark reminder that even the best insurance policy is useless if the premiums aren’t paid.
How did the Millers avoid the same fate?
The Millers, a retired couple, proactively addressed this issue during their estate planning. They established a revocable living trust and funded it with assets earmarked for ongoing expenses, including long-term care insurance premiums. They also included a “pour-over” will, which directed any remaining assets to be added to the trust upon their deaths. Their will explicitly instructed the trustee to continue paying the premiums for a designated period, regardless of whether they were still alive. When Mrs. Miller passed away peacefully at home, the trustee seamlessly took over the payments, ensuring the policy remained active and providing financial security for Mr. Miller. The trust not only simplified the estate administration process but also provided peace of mind knowing that their wishes would be carried out without causing undue stress or financial burden on their family. This meticulous planning ensured a smooth transition and allowed Mr. Miller to focus on grieving and cherishing the memories of his wife.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
Map To Point Loma Estate Planning Law, APC, an estate planning lawyer: https://maps.app.goo.gl/JiHkjNg9VFGA44tf9
- best estate planning attorney in Ocean Beach
- best estate planning lawyer in Ocean Beach
About Point Loma Estate Planning:
Secure Your Legacy, Safeguard Your Loved Ones. Point Loma Estate Planning Law, APC.
Feeling overwhelmed by estate planning? You’re not alone. With 27 years of proven experience – crafting over 25,000 personalized plans and trusts – we transform complexity into clarity.
Our Areas of Focus:
Legacy Protection: (minimizing taxes, maximizing asset preservation).
Crafting Living Trusts: (administration and litigation).
Elder Care & Tax Strategy: Avoid family discord and costly errors.
Discover peace of mind with our compassionate guidance.
Claim your exclusive 30-minute consultation today!
If you have any questions about: What role does tax planning play in preserving wealth through estate planning?
OR
How does an trust litigation attorney differ from a will?
and or:
Why is it important to regularly review and update an asset distribution plan?
Oh and please consider:
How can tax specialists help with asset distribution?
Please Call or visit the address above. Thank you.