Beneficiary of Trust

Definition - What does Beneficiary of Trust mean?

A beneficiary of trust is the individual entitled to the benefits of a trust as per the terms. These individuals are often also granted specific powers. In the context of insurance, people sometimes add their life insurance policies to an irrevocable trust for the purpose of saving their beneficiary from having to pay taxes on the death benefits.

Insuranceopedia explains Beneficiary of Trust

Insurance policies are set up similarly to trusts in that they have beneficiaries, and they often have similar rules and restrictions. However, trusts and life insurance policies can be taxed differently. For example, if the beneficiary of a life insurance policy is not the policyholder's spouse, or if the estate is worth more than $2,000,000, then different tax laws may apply on the death benefits. However, irrevocable life insurance trusts are often not subject to the same tax rules. Furthermore, another benefit of trusts is that they can be set up to pay out only a certain sum at a time so that the beneficiary does not immediately spend all of the funds.

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