An individual forms a life insurance trust to own a life insurance policy. When the grantor passes away, the death benefit on the policy is paid into the trust, and the trustee will distribute the proceeds to the beneficiaries in accordance with the terms of the trust agreement.
Life insurance trusts can be revocable or irrevocable. An irrevocable trust cannot be modified or canceled, and any assets placed into it will remain within the trust. The irrevocable life insurance trust is a popular estate planning tool for a high-net-worth individual (HNWI).
A revocable life insurance trust can be modified or canceled, and any assets placed into the trust can be removed or substituted.