Getting More From Your Policy With A Life Insurance Trust

Life insurance policies require policy holders to pay monthly premiums over decades and decades. With all of that money being invested into your policy, you want to be sure your beneficiaries are getting as much money as possible.

One of the ways to get the most bang for your life insurance policy buck is to set up a life insurance trust. Under normal circumstances, if a policy holder dies, the payout will be subject to estate taxes. But such taxation can be avoided if the policy holder transfers ownership of the policy to a life insurance trust. Depending on the particular policy, this could save beneficiaries tens of thousands or even hundreds of thousands of dollars in taxes.

More Specifics on Life Insurance Trusts

While Life Insurance Trusts offer the advantage of avoiding estate taxes, they do carry less flexibility.

-For example, when you set up a Life Insurance Trust, you cannot change the beneficiary of the policy because the trust will become the beneficiary. The insured cannot be the trustee of his own Life Insurance Trust, although the insured will designate the beneficiaries of the trust.

-Another drawback for some is that you can’t borrow against the policy any longer. If you do, then you go back to being deemed the owner of the policy for estate tax purposes.

-If you wish to set up a Life Insurance Trust, you will also have to find or hire a trustee to oversee the trust. Banks and trust companies are good options.

-Also, Life Insurance Trusts are irrevocable. That means that once you set up and fund the trust, you will not have the ability to get the policy back.

-There are limits on when you set up a Life Insurance Trust, too. You cannot transfer an existing policy to the trust unless you live for three more years. If the insured dies within those three years, estate taxation will kick in. If the insured dies after that three-year period, he or she will be taxed not on the entire face value of the policy but will be deemed to have made a taxable gift in the amount of the cash value of the policy.

There are many things to consider when setting up a Life Insurance Trust, but many people find the difficulties to be well worth the benefit of knowing that 100 percent of the policy will be going to the beneficiaries.

If you are thinking of setting up a Life Insurance Trust, you should speak with life insurance and financial experts.

Lesley Reuben writes for Life Insurance 2.0. To learn more or to compare life insurance quotes, compare term life insurance, or get an instant life insurance quote, visit

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