Trustee

What Does Trustee Mean?

A trustee is a third party legally responsible for managing a trust and distributing its assets according to the grantor’s instructions. Trustees are often financial institutions, such as banks. In the context of insurance, trustees are commonly used to manage life insurance trusts, where the primary asset of the trust is a life insurance policy. Because these trusts are designed to hold a policy for many years, they are usually funded with permanent life insurance policies rather than term policies that expire.

Insuranceopedia Explains Trustee

Many people set up life insurance trusts because they are often exempt from estate taxes. This allows the death benefit from a life insurance policy held in a trust to provide a larger amount to beneficiaries compared to one outside of a trust. By utilizing a trustee’s services, a policyholder can maximize the amount passed on to their beneficiaries. The tax treatment of life insurance proceeds is one reason families set up these trusts in the first place, since payouts that go directly to a named individual are generally income-tax-free but can still count toward the estate. However, to qualify for the estate tax exemption, the life insurance trust typically needs to be established at least three years prior to the policyholder’s death. Anyone considering this approach should also review the rules around naming and updating life insurance beneficiaries, since the trust itself becomes the beneficiary of the policy and the people who ultimately receive the money are named inside the trust document.