A trust is an arrangement in which property is transferred to a trustee (e.g., a bank) to be held and managed for the benefit of another (the beneficiary) under what is termed a fiduciary relationship.
Often, an irrevocable life insurance trust is funded by the proceeds from a life insurance policy which is purchased by the trust, after the trust has been established. Generally, in such situations, because the life insurance policy is owned by the trust, the proceeds from the policy will be free from estate taxes.
An irrevocable life insurance trust is established to protect the value of the estate from estate taxes, or prevent heirs from being forced to sell assets to pay for estate taxes.
As fiduciary, your bank is often responsible for administering and investing the assets in the trust for the benefit you and your beneficiaries. The terms of the trust are governed by a written document that the settlor (the grantor or creator of the trust) executes when the trust is established.
Use of an irrevocable life insurance trust can have many advantages:
Insurance policy proceeds paid to the trust may be made available for estate liquidity needs.
Insurance policy proceeds paid to the trust may be used to provide for your family in the form of periodic income payments or to pay for specified costs (such as college).
If the trust is created properly, the insurance policy proceeds will not be included in the taxable estate of you or your spouse.
Assets held in an irrevocable life insurance trust do not pass through probate.
Cautions about using an irrevocable life insurance trust:
Generally, you must forfeit all of your ownership rights under the policy. This forfeiture means that you no longer have the right to change the beneficiary on the policy, transfer ownership of the policy to another party, or determine the form in which policy dividends and proceeds will be received.
An irrevocable life insurance trust cannot be revoked. You cannot cancel the trust and recover the assets.
If an existing life insurance policy is transferred to the trust, generally you must live at least 3 years after the transfer in order for the transfer to be effective remove the policy from your estate.
A life insurance trust is a complicated legal document. It should be written by lawyers who are experienced in this area. A bank is usually assigned as trustee to administer the trust. M&T Bank offers complete trust services and can help you and your professional advisors in investigating whether a life insurance trust, or any other trust, can benefit you.
Investment and Insurance Products: • Are NOT Deposits • Are NOT FDIC-Insured • Are NOT Insured By Any Federal Government Agency • Have NO Bank Guarantee • May Go Down In Value
Brokerage services and insurance products are offered by M&T Securities, Inc. (member FINRA/SIPC), not by M&T Bank. M&T Securities, Inc. is licensed as an insurance agent and acts as agent for insurers. Insurance policies are obligations of the insurers that issue the policies. Insurance products may not be available in all states.
