Function
- A life insurance trust names an administrator (the trustee) who will manage the trust as separate property, allowing both the policyholder and the named beneficiaries to circumvent income and estate taxes as well as estate settlement costs because neither owns the policy.
Trust Creation
- An existing life insurance policy can be transferred into a trust, but the named insured must live at least three additional years after the transfer. Otherwise, the trust may be set up first and the policy sold directly to the trust.
Types
- A revocable trust can be taken out of the trust, and the policyholder can name anyone to manage the trust. The trustee can even be the policyholder or a family member. Conversely, an irrevocable trust can never be taken out of the trust, and neither the trustee nor the beneficiary can be altered. The trustee cannot be anyone with a vested interest in the policy.
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