15. The Contingent Life Insurance Trust

If in the event your minor children are orphaned, a contingent life insurance trust may be an ideal estate planning vehicle to properly care for the children's and the guardian's needs.

Your minor children can own property out right, but they cannot exercise control over the property. Your children's guardian has very limited powers fixed by the law. Property cannot be sold or exchanged without the authorization of the court. The guardian must secure approval of and account for all expenditures made for the benefit of the minor or
children. This inevitably involves court and attorney's fees. Without ownership rights to the property, the guardian must manage it and perform duties as directed by the courts, regardless of what the insured's wishes
for the child might have been. And, when the child comes of age, the guardianship terminates irrespective of the fact that the child might lack the maturity, judgement, intelligence, and experience to handle the property.

The contingent life insurance trust is designed to solve the legal and financial problems which arise if both parents die prematurely. Under the management of an experienced and competent trustee, your objectives for
your minor children can be fully carried out.

First, you select your spouse as the primary beneficiary for your life insurance policies. Next, a contingent life insurance trust is established and the trustee is designated as the contingent beneficiary of the life insurance proceeds. As the name of the trust implies, the trust becomes active only in the event of a contingency, i.e., the death of your spouse, the primary beneficiary.

The trust agreement, prepared by your attorney, incorporates your objectives for your children, and sets forth the discretionary powers granted to the trustee to accomplish these objectives. The trustee manages and spends both principal and interest income for the support and education of your children so that your hopes and ambitions for your children will be fulfilled.

You should give careful consideration to the creation of a contingent life insurance trust. The trust will round out your estate planning and your life insurance program. Foremost, keep in mind that a contingent life insurance trust cannot do its job if there is insufficient life insurance. Make sure your life insurance program will do for your family, if you die, what you will do for them if you live.

Back