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Do This One Thing to Protect Your Family When You Die

While contemplating the aftermath of your departure may not be the most appealing thought, ensuring the financial well-being of your loved ones becomes a priority. In such circumstances, the payout from your life insurance policy can be a significant relief, providing a lump sum of cash to support those you leave behind.

However, a compelling option to consider is placing your life insurance policy in trust.

It may sound like something only the super-rich contemplate, but this decision grants you greater control over the beneficiaries who will benefit from the payout. It can also help you navigate potential payout delays and mitigate tax implications, ensuring your loved ones receive the intended financial support efficiently.

In this article, we’ll cover key aspects such as the definition of a trust, eligible beneficiaries, advantages of placing life insurance into a trust, and specific considerations for unmarried couples.

By shedding light on these topics, we aim to empower you to make informed decisions about your life insurance policies.

1. What is a Trust
In very basic terms, a trust is a legal arrangement that allows you to transfer assets, including life insurance policies, to a designated trustee (a family member, friend, or legal professional over 18 years of age). Once your trust is set up, your trustee legally owns the policy and must ensure the trust deed is kept safe. The trustee holds and manages the assets on behalf of the trust’s beneficiaries, according to your instructions.

2. What Is Life Insurance in Trust?
A trust transfers legal ownership of your term or whole life insurance policy to your selected trustees. In other words, when you die, the proceeds from your life insurance won’t be counted as part of your estate, meaning you won’t be subject to inheritance tax.
Your estate is everything you own – all your money, possessions, property, and investments, less debts. Your estate can also include the proceeds of any life insurance policies.
By placing your life insurance policy into a trust, you ensure the proceeds are managed and distributed according to your wishes, avoiding potential delays and disputes.

3. Who Can Be a Life Insurance Beneficiary?

When setting up a trust for your life insurance policy, you have the flexibility to choose any individual or organization as the beneficiary. This includes family members, friends, charitable organizations, or even a combination of beneficiaries.
By designating the trust as the beneficiary, you retain control over how the proceeds are distributed and shield your loved ones from potential financial risks or mismanagement.
If you have an Irrevocable Life Insurance Trust (ILIT) , it is impossible to change your beneficiaries. However, with a Revocable Life Insurance Trust (RLIT), your trustees will have the freedom to pick your beneficiaries and determine the amount they are entitled to receive from a pay-out.

4. Benefits of Placing Life Insurance into a Trust
By placing your life insurance policy in a trust, you gain the following advantages:

• Enhanced Control: Establishing a trust for your life insurance policy enables you to exert greater influence over the distribution of the proceeds. You can specify the individuals or entities you want to benefit from the payout, ensuring that your loved ones are precisely taken care of according to your wishes.
• Mitigation of Inheritance Tax: Writing your life insurance policy in trust may help reduce the potential inheritance tax liability on the payout. By legally separating the policy from your estate, the proceeds become exempt or subject to reduced tax obligations. This can maximize the amount available to your beneficiaries, enabling them to receive more substantial financial support without undue tax burdens.
• Expedited Release of Funds: Probate refers to the process of dividing up your assets after your demise, and it can take several months to complete. By bypassing the probate process, which is often time-consuming, the money can be made available more quickly to support your loved ones during a challenging period.
• Protection from Creditors: Unless the policy was specifically taken to defraud creditors, setting up your policy in a trust protects the proceeds from creditors.

5. What about Unmarried Couples?
Unmarried couples often face unique challenges when it comes to estate planning and life insurance.
Placing a life insurance policy into a trust can provide crucial benefits for unmarried couples, allowing them to designate their partner as the beneficiary and ensure financial security in the event of their passing.
By utilizing a trust, unmarried couples can sidestep potential legal complexities and ensure their loved ones receive the intended financial protection without undue delays or tax burdens.


While contemplating the end of life is never easy, securing the future of your loved ones through a trust arrangement for your life insurance policy offers peace of mind and financial protection. By putting your life insurance policy into a trust, you can take advantage of several benefits, including streamlined payout processes, increased control over distribution, and potential tax savings.

By understanding the concept of trusts, selecting suitable beneficiaries, and considering tax implications, you can make informed decisions to protect your loved ones and maximize the benefits of your life insurance coverage. Additionally, unmarried couples can benefit greatly from placing their life insurance policies into a trust, ensuring that their partners receive the intended financial support smoothly and efficiently.
Consulting with an estate planning professional will help you explore the specifics of setting up a trust and tailor it to your individual needs.


Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

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