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Can you use an existing life insurance policy with a trust?

You want to set up a trust to control your life insurance. You know that the irrevocable life insurance trust (ILIT) can help with your estate taxes, and you have a substantial policy to consider. You think a trust is the best way to pass that asset on to your children.

What you’re wondering, though, is if you can use a life insurance policy that you already own. You have a close friend who already did this, but they did not own a policy prior to setting it up. They created the trust first and then had it buy the policy directly. Is that what you have to do, or can you just use the policy you already have?

There’s good news: You can use the existing policy. You do not have to buy a new one or even change the policy you control. Right now, you own that policy. You can simply transfer that ownership from yourself and to the ILIT. You just set the ILIT up first — like your friend did — and then transfer ownership at that point, rather than having the trust buy a new policy.

This means that you don’t have to reconsider what type of policy you want or worry about not qualifying for the same policy now that you’re older. It helps to streamline the process and ensures that you can deal with the estate you already own in the way you desire.

That said, this process can be complicated and it’s crucial that you do it correctly. Make sure you know what legal steps to take.

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