Florida Elective Estate Planning and Term Life Insurance Inclusion

Term Life Insurance in a Florida Elective Estate

In Florida, an elective estate—often created through a revocable living trust—can hold term life insurance policies, allowing the death benefit to bypass probate and be directed to designated beneficiaries or the trust itself. This arrangement differs from a simple will because the trust owns the policy, so the payout is not subject to Florida's probate process.

How Ownership Affects Distribution

When the trust is the owner and beneficiary, the insurance proceeds become trust assets upon the insured's death. The trustee then distributes the funds according to the trust terms, which can include paying off debts, covering estate taxes, or providing for heirs. If the policy names individual beneficiaries, the proceeds go directly to them, still avoiding probate.

Tax Implications

Florida has no state estate or inheritance tax, but federal estate tax may apply if the combined estate exceeds the exemption threshold. Holding a term policy in a trust does not change the federal tax treatment of the death benefit, which is generally income‑tax free. However, the policy's cash value—if any—could affect the taxable estate.

Benefits of Including Term Life in a Trust

• Probate avoidance: proceeds pass outside the court system.
• Control: trustee can allocate funds for specific purposes.
• Privacy: trust terms are not public record.
• Flexibility: policy can be changed or replaced without court approval.

Potential Drawbacks

Transferring ownership to a trust may trigger a three‑year "transfer‑for‑value" rule if the insured dies within three years of the change, potentially subjecting the benefit to estate tax. Additionally, the trust must be properly drafted and funded; otherwise, the policy could revert to the estate.

Practical Steps

1. Consult an estate‑planning attorney familiar with Florida trust law.2. Designate the trust as owner and/or beneficiary on the policy application.3. Ensure the trust document expressly authorizes life‑insurance ownership.4. Review the policy annually to confirm alignment with estate goals.

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