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Life Insurance Trusts


Life insurance trusts may have served a more prominent role in estate planning when estate taxes concerned more individuals. However, this type of trust can factor in nicely to an overall estate plan to effectively manage life insurance (and other assets) during a person’s life with the trust document then acting as a will substitute upon the person’s passing.

As well, given the Secure Act, the use of life insurance as an effective investment and financial planning device may come into play more as the trust allows the Trustee to manage, invest and reinvest the trust estate, collect the income and distribute the income and principal according to the trust document.

Even if life insurance is not used to fund the trust initially, the Trustee may be authorized to invest trust assets in life insurance upon the life of the Donor (the person transferring the asset initially). Split-dollar agreements may also be authorized allowing the Trustee to join with other owners to own certain portions of the life insurance policies with payments of premiums being shared, as appropriately determined.

Life insurance is a clean way to distribute assets, according to the trust document, at the death of the Donor and can help in any number of situations, including spouses who are separated but not divorced, blended families and in other situations where probate may be less desired.

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