What is Life Insurance Trust?

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In this website we aim to bring you as much information as possible about life insurance and everything related to it; that way, you will be able to distinguish the various types of policies, to realize what you want from a policy and how to get the deal you deserve. In what follows we are going to discuss another important branch of life insurance, the life insurance trust. To begin with, you must know that this is a definitive, irrevocable and non-amendable trust which is at the same time owner and beneficiary of a life insurance policy, or more than one policies.

The policyholder chooses a Trustee which, after his/her death, is responsible with investing the insurance proceeds and administers the trust for the beneficiary or beneficiaries of the policy. For example, a husband could set up a life insurance trust; after his death, the appointed Trustee will manage the proceeds which go to the wife and children, meaning to the immediate family of the deceased. Of course, the beneficiaries have to be mentioned in the policy; if the spouse is deceased as well, then only the children are beneficiaries. In some cases, there might also be a “second to die” or survivorship clause, which means the trust is released only when both spouses die, so the children are beneficiaries.

There are certain benefits of life insurance trust, but there are some drawbacks as well; in the United States it is important to be the proper owner of the policy, especially if you want to use the proceeds to pay federal estate taxation. However, in order to avoid this taxation, some insureds name someone from the immediate family as owner of the policy. But this too may have negative effects in the end, because you wouldn’t want to name as beneficiary a minor, who won’t know how to manage and invest the proceeds, and won’t have legal right to do it either until adulthood.

In order to avoid such mistakes, you can ask for an irrevocable life insurance trust, ideally where the owner of the policy is also the trustee, as well as the original applicant of the policy. Thus, the insured can transfer an insurance policy to a trust. Matters get complicated here, and there are many ways in which you can set up this trust; you can go to an insurance company today and ask them for life insurance quotes, as well as for information about this type of policy.

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