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What is a life insurance trust and why should I consider establishing one?

Question:

What is a life insurance trust and why should I consider establishing one?

Answer:

A life insurance trust is a trust that has the power to purchase life insurance policies on the person who establishes the trust (the grantor), the grantor's spouse, or the trust beneficiaries. The trust owns the life insurance policy and collects the death proceeds when the insured dies. The trustee then distributes the death benefits to the trust beneficiaries according to the terms included in the trust document. The trust document will identify who the trust beneficiaries are, how and when trust beneficiaries may receive distributions from the trust, and how the money in the trust may be invested.

Your life insurance trust may be revocable, meaning that you may make changes or revoke it, or irrevocable, meaning that you may not revoke, alter, or amend the trust once it has been established. The type you choose depends on your individual needs.

Life insurance trusts may be established for a variety of estate planning purposes, including:

  • To provide security for your family after your death while providing control over how the death proceeds are invested or distributed to your beneficiaries
  • To provide liquidity to your estate to pay debts and obligations, such as estate taxes

However, if the trust is revocable, if you are the trustee, or if the trust is required to use the death proceeds from the life insurance to pay your estate taxes and debts, the entire death benefit may be included in your taxable estate. The resulting taxes can significantly reduce the amount of the death proceeds available for your family. For many, keeping the death benefit out of their taxable estate is a key advantage of establishing a life insurance trust.

Please be advised that this materials is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transactions(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent advisor.

Information provided has been prepared from sources and data we believe to be accurate, but we make no representation as to its accuracy or completeness. Data and information is not intended for solicitation or trading purposes. Please consult your tax and legal advisors regarding your individual situation. Neither AXA Equitable nor any of the data provided by AXA Equitable or its content providers, such as Broadridge Investor Communication Solutions, Inc., shall be liable for any errors or delays in the content, or for the actions taken in reliance therein. By accessing the AXA Equitable website, a user agrees to abide by the terms and conditions of the site including not redistributing the information found therein.

AXA Equitable Life Insurance Company (NY, NY). Securities are offered through AXA Advisors, LLC, NY, NY 212-314-4600 (member FINRA / SIPC). AXA Equitable and AXA Advisors are affiliated companies, do not provide legal or tax advice and are not affiliated with Broadridge Investor Communication Solutions, Inc.

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GE 118376 (09/2016)