A life insurance trust is a trust which is both the owner and beneficiary of a life insurance policy. Thus, when the holder of the policy dies, the life insurance policy will pay the premium into the trust.
There are tax benefits to a life insurance trust. If the policy simply pays to the estate of the deceased, the premium will be subject to the estate tax. However, if the policy pays in to a life insurance trust, the premium is not a part of the estate and thus not subject to the tax.
There are certain limitations on a life insurance trust; it is irrevocable and non-amendable.
Definition from Nolo’s Plain-English Law Dictionary
A trust set up to own a life insurance policy, so that the policy proceeds arent subject to estate tax when the original policy owner dies. Life insurance trusts are usually irrevocable.
Definition provided by Nolo’s Plain-English Law Dictionary.
August 19, 2010, 5:19 pm