What is an insurance trust and its primary benefit?

An insurance trust is designed primarily to manage the proceeds of a life insurance policy, and its primary benefit lies in providing estate tax advantages. When a life insurance policy is placed in an irrevocable trust, the death benefit is not included in the policyholder's estate for tax purposes. This can significantly reduce the estate tax liability upon the policyholder's death, allowing more of the wealth to be passed on to beneficiaries rather than being diminished by taxes.

Furthermore, by using an insurance trust, the policyholder can set clear guidelines for how the insurance proceeds are to be distributed among the beneficiaries, which adds an additional layer of control and can help avoid potential disputes among heirs. This ensures that the life insurance benefits are allocated according to the policyholder's wishes.

While there are other aspects related to trusts and insurance, such as management and compliance with legal regulations, the key factor that highlights the value of an insurance trust is its role in effectively managing estate taxes, making this choice the most accurate.