Upon the insured’s death, the death advantage will be paid to the trustee and distributed to the beneficiary or beneficiaries by the trustee.
Why Use a Life Insurance Trust?
Although life insurance coverage trusts do not usually use benefits over personally-owned policies to the typical customer, there are a couple of circumstances in which developing a life insurance coverage trust may be prudent.
Although recent tax modifications more than doubled the exemption limit for federal estate taxes, estates worth over $11.18 million are still subject to a 40% tax rate. If the death benefit is transferred to the insured’s estate following his or her death (see our previous blog post), it might be subject to estate taxes. If the policy was owned by a trustee as part of a trust, it will leave tax on the insured’s estate because it is not technically “owned” by the insured.
Control Over Circulation of Death Benefit
In a typical life insurance policy, the death advantage is moved from the insurance company straight to the recipient or recipients upon the insured’s death.