Life Insurance and Revocable Living Trusts

Illinois exempts from creditors all proceeds payable because of the death of the insured and the aggregate cash value of any and all life insurance and endowment policies and annuity contracts payable to a spouse of the Insured or to a child, parent, or other person dependent upon the Insured, whether the Insured reserves the right to change beneficiary or whether Insured’s estate is a contingent beneficiary.

Until recently, this protection was not available if proceeds were payable to a revocable living trust.  This was at cross purposes with conventional estate planning using trusts where the revocable living trust is often named as the primary beneficiary on life insurance.   Effective August 17, 2012, proceeds payable to a revocable living trust under which the spouse, child, parent or other dependent of the Insured is the trust beneficiary are now exempt.

Nevertheless, the payment of a premium by insolvent insured would create presumption of fraudulent intent once a claim for liability is clear so purchasing a huge single premium annuity would not likely be protected from creditors.