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Do I need a Life Insurance Trust?

life insurance trust
Insurance Quotes 2 Day Team

Written By Doug Mitchell

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA.  Doug has spent close to 30 years in the insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health.  Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

Holly Mitchell  &

Holly Mitchell’s background in life insurance insurance goes back to 1985 when she worked for her father who was a New York Life agent. Holly has a marketing degree from Auburn University and has had a life insurance license since 2008. In addition to advising life insurance for customers all around the country, Holly is our website fact checker.

Rob Pinner   &

Rob Pinner is the founder and CEO of Pinner Financial Services servicing all 50 states. Rob started his insurance career in 2002.

Louis LaBash

Results-driven and innovative life insurance professional with 30 plus years of life insurance industry sales and marketing experience. Recognized as a pioneer in the field, leveraging phone and internet channels to exceed personal sales of over $100 million during the first decade of the 21st century. Creator of a highly effective intuitive IUL life insurance sales software that facilitated the sale of millions of dollars of indexed universal policies by numerous life insurance agents. Proven track record as a Managing General Agent (MGA), Life Agent, IUL Life Insurance Sales Software developer, and leading-edge creator of insurance marketing tools, educational content, and delivery systems.

 5 minute read

If you’ve ever thought about retirement planning or purchased life insurance from a reputable agent or financial planner, chances are that “Life Insurance Trust” may have been part of the conversation.

Although most people set up a trust as part of their estate planning, there are other reasons a trust would be financially beneficial to you and your family.

Simply put, a trust is designed to hold assets for a beneficiary but you are in charge of laying out which assets are to be managed (like life insurance benefits) and used and then you appoint the trustee you want to oversee the distribution process. Life insurance trusts are not just for the wealthy.  Types of life insurance held in trust can be indexed universal life, guaranteed universal life, whole life insurance and even term life insurance.

What are the Different Types of Trusts to Choose From?

Life insurance trusts come in two forms: Irrevocable and Revocable. The difference between the two is straightforward. A revocable trust can be changed or revoked while an irrevocable trust cannot.

In most cases, people who are not high net-worth can use a revocable trust to meet their needs but wealthy individuals or families will likely use an irrevocable life insurance trust for estate planning and tax purposes.

Who are the Parties to a Trust?

There are three parties involved in a trust other than the professional who creates the trust: the grantor, the trustee, and the beneficiaries who will receive the assets in the trust.


parties to a trust

Who is the Grantor in a Trust?

The grantor is the person who creates the trust (you) and then transfers the property (assets) to it. The grantor can be more than one person (like a married couple) but will typically have to agree when amending the trust or revoking it.

Who is the Trustee in a Trust?

The trustee is the person or entity in charge of managing the trust. In many cases, the trustee is the same person or persons who created the trust. Depending on the state where the trust is originated, the trustee can be a bank, trust company, or brokerage firm.

The trustees have an obligation to protect the assets within the trust and to make sure the purposes of the trust are carried out. The trust agreement defines the rights and obligations of the trustee that also must conform to the laws of the state in which the trust is originated.

With a living trust, however, the grantor is usually the trustee and has control over the assets within the trust. If the grantor becomes unable to manage the trust, a successor trustee is named to replace the grantor.

Who is the Beneficiary in a Trust?

Simply put, the beneficiary is the person or persons that will benefit from the trust. The beneficiary is entitled to the income and the principal of the trust. There are also different kinds of trust beneficiaries; primary, secondary, and a remainder beneficiary.

The primary is the person or persons who will be first to receive the trust benefits such as the grantor, the grantor’s spouse, or the grantor’s heirs. The contingent beneficiary or beneficiaries receive the assets after the primary beneficiary but in the case of a living trust, when the grantor dies, the trust becomes irrevocable and the contingent beneficiary becomes a remainder beneficiary.

There are many uses for a revocable trust and the grantor is able to direct the assets within in it how he or she pleases in order to make certain that the benefits are distributed according to his or her wishes.


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How do I know what Kind of Trust I Need?

Just like purchasing life insurance according to your needs, setting up a trust should be done according to your needs and circumstances as well. Whether your needs indicate a revocable or irrevocable trust, it’s important that you consult an experienced and reputable professional for advice.

Here are the most common forms of trusts and what they are commonly used for:

  • Living Trust – Sometimes referred to as a revocable or inter vivos trust, a living trust is a legal document where your assets are placed in a trust for your benefit while you are living, and then transferred to your beneficiaries when you die. The transfer is handled by a successor trustee you have previously chosen. A living trust is not a will which simply distributes your assets after probate. One of the primary benefits of a Living Trust is that it avoids probate altogether.
  • Charitable Remainder Trust – A charitable remainder trust is a revocable trust that is funded during the grantor’s lifetime with assets such as cash or life insurance that allows the grantor to benefit from the trust while alive and then leave a legacy to the charity upon the grantor’s death.
  • Special Needs Trust – A special needs trust is designed to manage assets that will benefit a person or persons with physical or mental disabilities. This includes persons who lack the capacity to manage their own finances. A Special Needs Trust is commonly used to make certain the trust benefits will not impact a variety of government programs that the beneficiary may have qualified for through means testing. The assets in the trust are also immune to any claims following a lawsuit filed against the beneficiary. A Special Needs Trust should be considered even if the beneficiary does not receive government benefits because the trustee can use the assets in the trust to purchase  medical and dental services, pay the cost of personal care attendants, education, physical therapy, and just about any other goods or services that would benefit the special needs beneficiary.
  • Irrevocable Life Insurance Trust (ILIT) – An ILIT is an irrevocable trust that is funded with life insurance and is commonly used in estate planning. Since this trust is irrevocable the grantor (you) cannot be the trustee. Once the trust is properly set up and funded, the grantor must give up any rights to make changes to the trust or dissolve it. High net-worth individuals and couples generally rely on an ILIT to insulate the assets in the trust and make certain they are not considered part of the estate. The ILIT is commonly employed by family farm or business owners and high net worth professionals such as Doctors and Lawyers to be able to provide the funds needed to cover estate tax liability that will likely be owed by their heirs. Even though the government has increased the exemption for property taxes, many family-owned businesses require the benefit of an ILIT so that the estate can be passed to heirs without a financial burden caused by federal and state estate taxes and inheritance taxes.

In Conclusion

Everyone who has at least $1 or property of any kind has an estate. Unless you take the necessary steps to provide specific instructions on how your estate is distributed, the state will take over and distribute your property for you.

Every individual, rich or poor, single or married should have a will in place and in many cases, he or she should have a trust in place so that certain assets will not be considered part of the estate and subject to taxes upon your death. Unless you leave specific instructions about distributing your assets, a government official will do it for you.

For more information about life insurance trusts and to determine your needs, call us today at 800-712-8519 .
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Doug Mitchell, CLU Independant Advisor
Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA. Doug has spent almost 30 years in the life insurance industry and has also held licenses to sell securities, long-term care insurance and home and auto insurance. Doug is a Top of the Table Million Dollar Round Table member (MDRT).  MDRT is a global, independent association of the world's leading life insurance advisors.  For two years, Doug served as President of the Auburn Opelika Association of Financial Advisors and has been a member of the Million Dollar Round Table. He obtained Life Millionaire status at Horace Mann Insurance Company and was awarded the Life Agent of the Year Award. Later in his career with New York Life he was an Executive Council Member. Doug currently serves as President of Ogletree Financial, a managing general agency serving life insurance agents and clients in all parts of the United States. Today, Doug’s main focus is servicing 1000s of policyholders and growing the agency through the reach of