Living Trust

What Does Living Trust Mean?

A living trust is a type of trust that a person creates during their lifetime, where they transfer assets into the trust to be managed by a trustee.

These trusts are relevant to the insurance industry because many individuals place their life insurance policies into living trusts to manage the distribution of benefits upon their death.

Insuranceopedia Explains Living Trust

When a person establishes a living trust, the goal is often to transfer assets to beneficiaries in a more favorable way, such as through reduced taxation or other regulatory advantages, compared to traditional inheritance methods. How the death benefit gets taxed depends on the policy structure and how the trust is set up, and the rules around whether life insurance is taxable can affect what beneficiaries actually receive.

Assets held in a living trust do not need to go through probate, which can save significant time and money. This is especially beneficial when dealing with life insurance policies, which are often worth large sums of money. Naming the trust as the policy beneficiary also sidesteps some of the common life insurance beneficiary mistakes that come from listing individuals directly, such as naming minor children or an ex-spouse who was never updated after a divorce.