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The Charles Law Offices
Largo Office Wells Fargo Building
801 West Bay Drive, Suite 518
Largo, FL 33770
Phone: 727-683-1483
Toll Free: 866-499-3322
Clearwater Office Hodusa Towers
28870 U.S. Highway 19 North,
Suite 300
Clearwater, FL 33761
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1700 66th St. N.,
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St. Petersburg, FL 33710

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What Is a Life Insurance Trust?

A life insurance trust is an irrevocable trust you set up to fund a life insurance policy so that your estate can benefit from its proceeds without triggering the estate tax. This type of trust is appropriate if you have a large estate and want to make funds available immediately to your beneficiaries. This is basically how it works:

You set up a trust, endowing it with funds sufficient to pay the premiums on a life insurance policy. You purchase the policy, making the trust the life insurance beneficiary. You also record instructions in the trust document regarding the final disposition of trust assets.

When you pass away:

  • The trust immediately receives the policy proceeds, which are not taxable and are not counted against your estate for federal estate tax
  • The trustee uses the proceeds to pay any expenses related to settling your estate, such as estate taxes, creditor claims and funeral expenses.
  • The trustee distributes the remaining assets according to your instructions in the trust documents.

A life insurance trust gives you greater control over the policy benefits than if you simply bought a policy and named a beneficiary. For example, you can set a timetable for release of funds to give a loved one an income over time, or you can place conditions on the release of funds if you are concerned the beneficiary might put the money to poor use. However, a life insurance trust is irrevocable, so once you execute the documents, you cannot dissolve the trust and you can only make very limited changes to its terms. It’s important to get reliable advice before committing to this strategy.

If you think a life insurance trust might work for you, a knowledgeable estate planning attorney at the Charles Law Offices can provide further information.

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