Spendthrift Trust
MR. WATSON: Spendthrift provision . Here's what I want to ask you. If I die, can my creditors go after my life insurance proceeds?
ALL: No.
MR. WATSON: Life insurance proceeds are free from creditors. Now, let's say that Jersey is my beneficiary. If I leave the money to her, it's paid out to her. Can her creditors go after it?
ALL: Yes.
MR. WATSON: Once the check is paid out, it's just a what? A check. So her creditors can indeed go after it. Do y'all agree?
ALL: Yes.
MR. WATSON: To protect my beneficiary from her creditors, I direct that when I die, my proceeds go into a trust called a spendthrift trust. And I direct that they pay out to my beneficiary $5,000 a month, for example. The stuff that's in the trust, the money, the corpus, cannot be attached. Creditors can't go after it. The clause states that policy distributions are not assignable or transferable in any way.
MR. WATSON: So the spendthrift trust protects whom from what?
ALL: Beneficiary from the beneficiary's creditors.
MR. WATSON: Very good.
Facility-of-Payment Provision
MR. WATSON: Facility-of-payment provision . There are a few limited-limited-limited situations in which an insurance company must pay proceeds to somebody not designated as a beneficiary. A facility-of-payment provision is most typically found in industrial policies-very small policies, agreed?
MR. WATSON: This provision allows insurance companies to pay all or a small portion of these proceedings to someone who, though not named in the policy, has a valid right. These situations include cases where
- the named beneficiary is a minor,
- where the named beneficiary is dead, or
- no claim is submitted within a specified period of time.
MR. WATSON: Let's say it's a policy that Great Grandpa has up in the hills of Kentucky for $250. Great Grandma is dead. It's just him. So the County of Boonesboro paid to have him buried. Well, just to get the claim off the books, they could pay it off to the funeral home. Does that make sense?
ALL: Uh-hmm.
MR. WATSON: It's for small industrial policies, allows the insurance company to clean up the books. Facility-of-payment provision.
Hmmm, I wonder what is below!.
