Life Insurance Trust

What Does Life Insurance Trust Mean?

A life insurance trust is a program that transfers the ownership and management of a life insurance policy to another person or entity. The purpose of this arrangement is to ensure the proper distribution of the money that will eventually be paid out by the policy.

Insuranceopedia Explains Life Insurance Trust

The program begins with a person called the grantor, who assigns a person or entity (the trustee) to manage the trust. The trustee then becomes the owner and manager of the grantor’s insurance policies, but their decisions are made according to the provisions outlined by the grantor. These provisions ensure that, when the proceeds from the policy or policies are paid out (usually after the grantor’s death), they help minimize the taxation of the grantor’s estate and that the death benefit is distributed to the beneficiaries (typically the surviving family members) in accordance with the grantor’s wishes, as specified in the trust.

Banks and other financial institutions, known for their expertise in managing trusts, are often appointed as trustees.