Definition - What does Trust mean?
A trust is a legally binding arrangement where one party has another manage certain assets on their behalf. In the context of insurance, life insurance policies are often placed into trusts. When this happens, it is called a life insurance trust. Upon the death of the grantor, the trust pays the benefits to the beneficiaries.
Insuranceopedia explains Trust
People often set up life insurance trusts because they can be exempt from the estate tax. Considering that death benefits often provide a substantial amount of money, estate taxes on insurance policies can also be quite significant. So, people commonly use life insurance trusts to try to give more money to their beneficiaries then they may otherwise be able to do. It is common for the law to require that a life insurance trust to be set up at least three years in advance of a grantor's death in order for the death benefit to be exempt from the estate tax.
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