What are Insurance Trusts
In recent years, wealth preservation and inheritance have always been hot topics among high-net-worth individuals. Insurance trusts, as a wealth management tool combining trusts and life insurance, have gradually gained favor among high-net-worth clients and are widely used.
As a type of family trust, an insurance trust has the insurance proceeds designated as the trust asset. Under the insurance trust structure, the settlor entrusts a trust company to establish an insurance trust, and designates direct relatives or other third parties as the beneficiaries. The assets under the trust are life insurance policies, the settlor of the trust is the insured of the policies, and the policyholder and beneficiary are both the trustees. When the insurance policies pay out death benefits, since the trustee is the policy beneficiary, the insurance payouts will be injected into the trust established by the settlor, becoming assets under the trust. At this time, the trustee shall manage, utilize, and allocate the trust assets to the trust beneficiaries in accordance with the trust agreement signed with the settlor and by referring to the letter of wishes.
The establishment of insurance trusts mainly has the following three cases:
- The settlor does not yet hold any policies: After the settlor entrusts a trust company to establish an insurance trust, he/she will inject funds into the trust for the trust to purchase insurance policies on behalf of the settlor. The trust directly acts as the policyholder and beneficiary.
- The settlor already has policies, but the premiums have not been fully paid: After entrusting a trust company to establish an insurance trust, the settlor transfers the ownership of the policies to the trust, and redesignates the trust as the policy beneficiary. After the trust becomes the policyholder and beneficiary, it uses the funds injected by the settlor into the trust to pay the remaining premiums of those policies.
- The settlor already has policies with premiums fully paid: After establishing an insurance trust with a trust company, the settlor can directly transfer the ownership of those policies to the trust, and redesignate the trust as the policy beneficiary.