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We all know it is a good idea to have life insurance. When we pass, especially if it is sudden or unexpected, having life insurance protects our families by leaving them some money to help pay for funeral and burial costs as well as have some money for living expenses.

However, with estate taxes being as high as 35%, more then one third of our insurance pay out goes back to the government.

life insurance trustThis is where having a life insurance trust can be beneficial. Having the right kind of life insurance coverage is one of the most important things that you can do for your family. A life insurance trust is an excellent way to give your family the protection that they need if something tragic were to happen to you.

At Life Insurance by Jeff, we get a lot of questions about life insurance trusts and the benefits of these trusts. We know that it can be difficult trying to find the best option for you, but that’s why we are here to help.

This article is going to look at the different factors of a life insurance trust and the benefits and disadvantages of these plans. Hopefully, this article is going to answer any questions that you have.

What Is A Life Insurance Trust?

A life insurance trust can be set up to avoid having to pay any estate taxes on the policy distribution. When a life insurance trust is in place, the beneficiaries get 100% of the policy value rather then 1/3 of the money going to estate taxes. With a this kind of insurance, someone needs to be designated as the trustee and this person controls the trust and distributes the pay out to the beneficiaries. While a life insurance trust might sound like a no-brainier, there are some drawbacks.

Preexisting Policies

Trusts are typically not able to be transferred to life insurance policies that are already in place. If a person chooses to set up a trust for a current policy, they must live for at least three years after the trust is established or they will still be charged estate taxes on the payout. There are also other penalties and taxes that are charged on policies that were already in issuance beyond the three-year period. It is best, and recommended that trusts be set up for new life insurance policies only.


Once a life insurance trust is established, the owner of the policy gives up the right to change the beneficiary of the policy. The trust becomes the beneficiary and the trustee has control over the distribution to the predesignated beneficiaries of the life insurance policy. While most people make their spouse or children their beneficiary, in the event of divorce or a falling out with a family member, nothing can be changed.

This is one of the most notable disadvantages of a life insurance trust that you won’t run into with many other life insurance plans. More than likely, you won’t ever have to change the beneficiary of your life insurance policy, but at least you have the option with a traditional plan. With a life insurance trust, once those papers are signed, that’s it. There is no changing the coverage. As long as you’re comfortable with that idea, then these trusts could still be a good option for you.

When you’re setting up one of these trust, make sure that you make the best decision for your beneficiary. Because you can never change it, you should ensure that you’re making the best decision for who is going to receive the trust when you pass away.

Other Considerations

Life insurance trusts can not be borrowed against like most typical life insurance. So while having the trust established will avoid estate taxes later on, if one might need the money for an emergency or medical care, then this is a factor that needs to be considered. Trusts are also irrevocable, so once the policy is established, it can not be canceled. This is something to consider as well.


Because a policy holder can not control the trust of their life insurance policy, they must designate a trustee. Typically, one must be hired and this costs money. If the policy is complicated, the policy holder should decide if the benefit of paying for a trustee outweighs the benefit of avoiding estate taxes. Most trustee’s for life insurance trusts do not charge expensive fees because they have to relatively little to maintain the trust.

Life insurance trusts are a solid commitment that you’re locked into once you sign the paperwork. In most cases, these aren’t going to be the best option for your family’s insurance coverage. With other types of life insurance coverage, you won’t be restricted on the changes that you can make for your policy.

With an insurance trust, one of the unique advantages of these plans is that your health won’t play a role in your purchase, like it will with a traditional policy. With a normal life insurance plan, you’ll be required to take a medical exam. The results of the medical exam could cause you to pay a fortune for your life insurance plan. With a life insurance trust, you won’t have to worry about that.

Deciding Which Life Insurance Option Is Right For You

Deciding which kind of life insurance coverage is right for you can be an overwhelming and difficult process, but it’s important that you make the best investment for your family. There are several types of life insurance protection that you can buy and thousands of different life insurance companies on the market that you can choose from. Luckily, our agents are here to help you get the best insurance protection for your family. When you’re deciding which plan to buy, there are several factors that you’ll need to consider.

The first question that you’ll need to ask yourself is, “how much do I want to spend on life insurance?” this is one of the most important factors that you’ll need to consider. The purpose of life insurance protection is to give your family the money that they need if something tragic were to happen to you, but it shouldn’t break your bank. If you want to get the cheapest life insurance coverage available, then an insurance trust isn’t going to be the best option. Instead, a term insurance policy will save you thousands of dollars policy. Term insurance plans are going to be significantly less expensive than other options.

The next factor that you should look at is how long will you need life insurance. Life insurance trust will obviously give you coverage as long as you live, but maybe you won’t need life insurance that long. A lot of people reach a stage of life where they no longer need a life insurance plan, which means that you could be paying for insurance that you don’t really need.

We know that it can be overwhelming finding the perfect plan for you, but we are here to help. We are a group of independent insurance agents, which means that we don’t work with one single insurance company. Instead, we work with dozens of highly rated companies across the nation, which means that we can bring all of the best insurance plans directly to you.

Every insurance company is different, which means that if you decide to buy a plan other than an insurance trust, then it’s important that you get dozens of quotes before you decide which one is best for you. Our agents have years of experience working with all kinds of applicants across the nation, which means that we can bring incredible plans to protect your family.

Life Insurance Trusts – What You Need To Know

Regardless of which kind of life insurance that you buy, either a trust or a traditional plan, it’s vital that your family has the coverage that they will need. If something tragic were to happen to you, and you didn’t have life insurance, your family would be left with some massive debts. A life insurance policy will ensure that your family will have the funds that they need to get through the difficult situation without having to worry about finances.

You never know what’s going to happen tomorrow, which means that you shouldn’t wait any longer to get the insurance plan that your family deserves. If you have any questions about life insurance trust or other insurance options, please contact one of our agents today. We would be happy to answer those questions and connect you with the plan possible.