A life insurance trust is a trust that is used by the owner of a life insurance policy to transfer any proceeds tax free. A trust of this nature is usually set up to avoid paying estate tax. In this agreement, the owner would "trust" the ownership of the policy to the beneficiary so that when the insured dies, the proceeds would transfer completely tax free.
A life insurance trust has the ability to save a significant amount of money in estate taxes. It is important to note though that it is not ideal for all situations. It is important to consider the following before deciding a life insurance trust is in your best interest.
1.) When a beneficiary is named, they cannot be changed.
2.) You are no longer able to borrow against your policy.
3.) Naming a trust to an already existing policy requires a waiting period.
4.) A third party trustee is required.
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