What Happens to a Life Insurance Policy Without a Life Insurance Trust?
Without a life insurance trust, the beneficiary of the life insurance policy will receive only a percentage of the actual value of the death benefit, because the gross amount of the policy payout will be subject to estate taxes (for example, 45 percent in 2008). Without a life insurance trust, you — the insured — will have no control over how the life insurance policy proceeds are spent or invested. For example, if the named beneficiaries of the policy are your young adult children, you may prefer that your children not receive the policy payout in a lump sum out of concern for reckless spending.
