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Can a Trust-Owned Life Insurance Policy Be Sold?
By Saul L. Appel, CLU®, ChFC®
Yes, a trust-owned life insurance policy may be eligible for a life settlement. The key questions are whether the trustee has authority to sell, whether the transaction is consistent with the trust’s purpose, and whether the policy meets buyer requirements.
The trustee will usually need to provide relevant trust documents, proof of authority, policy records, and identification. Depending on the trust and applicable law, consent from another trustee, trust protector, beneficiary, or legal adviser may be needed. The trustee must act prudently and consider how a sale affects the beneficiaries.
The analysis should compare the proposed settlement with the alternatives. These may include maintaining the policy, reducing the death benefit, using policy values, transferring ownership, surrendering the coverage, or allowing it to lapse. Future premiums and the trust’s ability to pay them are important considerations.
Tax and estate-planning consequences can be significant. A sale may change the trust’s assets, distribution plan, or estate-tax strategy. Trustees should consult the trust’s attorney and tax adviser before accepting an offer.
Trust ownership does not prevent a preliminary evaluation. Basic information—including the insured’s age and health, carrier, policy type, death benefit, cash value, and premium—can indicate whether a full review is worthwhile.
This article is educational and is not legal or tax advice.
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Saul L. Appel, CLU®, ChFC® | President, Appel Financial, Inc. | 50+ years experience