How Does a Life Insurance Trust Work?
A life insurance trust has three components. First, you are the grantor (also called the settlor or trustor) and create the trust. Second, there is the insurance trust itself, which is managed by the trustee you select. Third, there are the beneficiaries you select who will receive the trust assets when you are gone.
With a new policy, the trustee applies for the life insurance policy. You are the insured, and the trust is the owner of the policy. Also, you may assign an existing policy to the trust. In either case, you give the money to the trust to make the premiums. (This is discussed in more detail below.)
The trust is the beneficiary of the policy. After your death, the trustee will collect the proceeds and distribute them as you have instructed in the trust instrument.
The following illustrates the above:
Grantor | Cash for Insurance ——-> | Trust (Insurance Policy) | Insurance Proceeds ——-> | Beneficiaries |
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