Life Insurance Trust: The Insured’s Duties

Life insurance trusts are used to get the cash value and proceeds of one or more life insurance policies out of an individual’s estate, thus avoiding the federal estate tax. As the insured, you have few duties. Your estate planning attorney, life insurance representative, and trustee do all the work. You and your loved ones get all the benefit.

The Insured’s Duties

Consult with a qualified estate planning attorney to design your estate plan.
If a life insurance trust is appropriate, choose a trustee (and contingent trustees.)
Sign the trust agreement. Keep an original of the trust agreement in your file or fire safe.
Gift cash to the trust (enough to pay for the insurance and to keep the account open.)
Sign the consent for medical exam for the life insurance (this is NOT the application to purchase insurance.)
If you’re transferring any existing life insurance policies into the trust, sign to do so. Change the address for premium notification to the trustee’s address.

Your Estate Planning Attorney’s Duties

Determine whether an insurance trust is appropriate.
Design, draft, and supervise execution of trust agreement.
Retain original trust agreement.
Obtain federal tax identification number.
Answer questions and guide process for client, trustee, and insurance representative.

Your Trustee’s Duties

Sign trust agreement.
Apply for new life insurance policies.
Open non-interest bearing checking account in the name of the trust.
Send written notices (“Crummey Notices”) to beneficiaries when gift is made to the trust, if applicable. (Repeat annually.)
When Crummey Notice withdrawal period elapses, pay insurance premium. (Repeat annually.)

If you have a federally taxable estate, there is no need to lose half the value of your life insurance to federal estate taxes. Instead, consult a qualified estate planning attorney to determine whether a life insurance trust is right for you.