Also known as: life insurance trust · insurance trust
Written by attorneys · grounded in primary & secondary sources — see below
An arrangement under which a trustee holds one or more life insurance policies on the life of the settlor or another insured person. The trust may contain only the policies and therefore remain unfunded until the insured dies, or it may receive additional assets during the settlor's lifetime.
Lola Langley created a written unfunded life insurance trust naming her brother as beneficiary and designating a bank as trustee. She later executed a will that devised her stock portfolio to the trustee of that trust. At her death the trust instrument still existed and had never been revoked. The devise passes the portfolio into the trust for administration under its terms rather than through probate.
Lorenzo Lugo transferred several policies on his life to a trustee while reserving the rights to receive income, change beneficiaries, and revoke the arrangement. After his death the trustee collected the proceeds and distributed them according to the trust terms. The retained powers did not convert the trust into an invalid testamentary disposition.
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A will may devise property to the trustee of a trust established during the testator's lifetime, including a funded or unfunded life insurance trust. The devise remains valid even though the trust corpus is only the insurance policies and even if the settlor retained ownership rights in those policies.
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A revocation or termination of the trust before the testator's death causes the devise to lapse unless the will provides otherwise. The property then passes through the probate estate rather than into the trust.
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The statute expressly validates a devise to a trust that is amendable or revocable and permits amendments made after will execution or after the testator's death. The poured-over property is administered under the trust as amended.
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The will need only identify the trust. The trust terms may appear in a separate written instrument executed before, concurrently with, or after the will. Descriptive language that points to the correct trust satisfies the requirement.
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…made to the trustee or trustees of a trust established or to be established by the testator . . . including a funded or unfunded life insurance trust, although the trustor has reserved any or all rights of ownership of the insurance contracts, if the trust is identified in the will and the terms of the trust are set forth in a written…