A life insurance trust is an example of a trust that is non-revocable and cannot be amended once it is set in place. The trust functions as both the owner and the recipient of the proceeds from one or more life insurance policies. Upon the death of the ensured party, the trustee or administrator of the trust oversees all functions established for the operation of the trust, including making disbursements to beneficiaries in a manner specified by the terms of the trust.
In some countries, the establishment of a life insurance trust rather than simply taking out life insurance coverage can be extremely helpful to the beneficiaries. Depending on how the trust is structured, there is a good chance that estate taxes will not be incurred on any disbursements made by the trust. This effectively places more of the funds into the possession of all beneficiaries without creating tax issues for each beneficiary to deal with.
Another important reason for considering a life insurance trust rather than simply designating a spouse, child, or other individual as the beneficiary is to make sure the full intentions of the insured party are carried out. Because the trust can be structured to allow only periodic disbursements to beneficiaries, it is possible to make sure that the assets generated by the policies are not squandered away in a short period of time. If the intent of the insured party was to provide an equitable income for each of the beneficiaries over a period of several years, going with a life insurance trust simply makes sense.
Trusts of this type can be structured to allow for circumstances that could not be predicted at the time the trust is established. For example, if a spouse is named as the primary beneficiary but dies before the insured party, the life insurance trust can be empowered to cope with this issue. The trust can be empowered to redistribute any amount allotted for the spouse to the children or any other beneficiaries that are alive at the time of the demise of the insured party. This allowing for the unexpected helps to ensure that the trust is never lacking in specific instructions for the trustee to follow.
A life insurance trust is a simple but effective way to arrange for asset protection, to carry out both the explicit and implied wishes of the insured party, and provide the means to structure financial planning for survivors that will make a secure financial future more of a possibility. By placing the assets associated with the trust into the hands of a trustee, it is possible to rest assured that family, loved ones, and even causes close to the heart of the insured will be adequately provided for in the future.