When you set up a life insurance trust, it is the trust that owns the life insurance policy. You are still named as the insured party, but you do not own the policy the way that you typically would without the trust in place.
What this means is that, after you pass away, the death benefit is paid out into the trust. When you set up this arrangement, you will also have selected both a trustee and at least one beneficiary. The trustee will manage the funds, and the beneficiary is the person who receives the money.
You can choose multiple beneficiaries
One way that this type of trust gives you more control is that it allows you to pick numerous beneficiaries. Your trustee can then communicate and coordinate with them to give them access under the instructions provided.
You can create instructions that work for your family
When setting up the trust, you are able to give a set of instructions to the trustee that they have to follow. This could include when the money should be distributed to the beneficiaries, if you want to delay payment, or provisions regarding the way that they can use the money.
For instance, you may be worried that someone who receives a large life insurance payout will spend the money frivolously. But by putting it into a life insurance trust, you can stipulate that they must use the money for things like a college education, buying a home, starting a small business and much more. You do not have to micromanage their spending, necessarily, but you can ensure that they use the money in a way you would approve of.
Setting up a trust
You certainly do have the option to just choose a beneficiary on the life insurance policy itself. But if you would like to instead use a trust, be sure you know what legal steps to take.