Adam Frank

Managing Director, Head of Wealth Planning and Advice, J.P. Morgan Wealth Management

Estate planners and insurance professionals often recommend that people create a separate trust to own life insurance policies. Whether a life insurance trust makes sense for you depends on your goals and a number of other factors.

Why own life insurance in a trust?

If you own a life insurance policy, you probably know that the beneficiaries you’ve named to receive the insurance proceeds when you pass away get that money income tax-free.

However, payout on a life insurance policy may not be exempt from estate tax, which is why planners often recommend that a trust own your life insurance policy instead of you owning it.

If you’re married and you name your spouse as the beneficiary of a life insurance policy that you own, there’s no estate tax on the insurance proceeds when you pass away because the payment to your spouse qualifies for the unlimited marital deduction from estate tax.

When your spouse eventually passes away, however, any of the proceeds that are still in your spouse’s name are subject to estate tax. An insurance trust can be an easy way to shelter the insurance proceeds from eventual estate taxes and prevent those proceeds from pushing your  spouse’s estate value over the estate tax exemption threshold. And if you aren’t married, or if you and your spouse have a policy that only pays out on the death of the second spouse to die (a survivorship or second-to-die policy), having a trust as the policy owner can protect the insurance proceeds from estate tax on the death of your survivor. And don’t think only of the federal estate tax; if you live in one of the states that has a separate, state-level estate tax, you may want to consider an insurance trust even if your net worth (plus insurance proceeds) doesn’t exceed the federal threshold.

How it works?

Existing insurance: If you already own one or more life insurance policies, you can change ownership from your name to your insurance trust.

First, you would work with an estate planning attorney to create the trust document. You’ll want to consider who will act as trustee of the trust and under what circumstances your beneficiaries will have access to the insurance proceeds.

Once the insurance trust is drafted and signed by you and the trustee or trustees, you should get a change of ownership form from your insurance broker or from the insurance company. Once you’ve transferred ownership by completing the form and submitting it to your insurance company, the trust owns the policy and payments of the insurance proceeds to the trust should be excluded from your, and your spouse’s, taxable estates. At the same time you change ownership of the policy, you may also want to name the trust as beneficiary.

There are two wrinkles, however:

  • In order for the insurance proceeds to be outside of your estate, you need to survive for more than three years from the date you transfer the policy into the trust. If you die within that period, the life insurance amount will be included in your estate for estate tax purposes.
  • The transfer of the life insurance policy into trust is a gift and could use up a portion of your gift tax exemptions so you’ll want to work with your attorney and tax advisor.

New insurance: If you don’t own an insurance policy today, the most effective way to proceed is to create an insurance trust first. The trust should then apply for insurance on your life. The trust will be the original owner when the policy is issued, which means that the insurance amount will be outside of your estate from the moment the policy is issued – there’s no three-year lookback.

The mechanics

Once the policy is in your trust, you and your trustees still have to make sure that premiums are paid every year. The trust makes the process a little more complicated, but it will quickly become routine.

  • Premium notices will be sent to the owner – in this case the Trustee or Trustees.
    • Make sure the trustees let you know when they receive a premium notice.
  • You contribute the amount of the premium to the trust; this is a gift. The trust will need to have a checking account for this purpose; you can write a check or electronically transfer funds to the trust
  • When you transfer the funds, you should provide the trustees with a notification that you’ve made a contribution to the trust in the amount of the premium.
    • Your lawyer should provide you with a form of this notification when he or she creates the initial trust for you, but there’s no particular form that’s required
  • The trustees then notify the beneficiaries that you’ve made a contribution to the trust and they have a right for a short period of time to withdraw their proportionate share of the amount you contributed
    • This will allow your contribution of the premium amount to the insurance trust to qualify for your annual gift tax exclusion ($18,000 in 2024); any contributions in excess of the annual exclusion may use up a portion of your lifetime gift tax exemption ($13.61 million in 2024)
    • The beneficiaries will have a short period of time to make a withdrawal; in general, they will never exercise that right so that the contribution would remain in the trust to pay the premium
  • Once the waiting period expires without the beneficiaries having exercised their withdrawal right, the trustee pays the premium

You and the trustees will follow this process every year. Eventually, when the children reach the age of majority, they will have to be notified of their right to withdraw (but you would make it clear to them that withdrawal of any one year’s gift would not be in their best interest longer term).

If you find this process to be cumbersome, you may want to consider making a large upfront contribution to the trust (that likely would use up a portion of your lifetime gift tax exemption). These funds could be used over the term of the policy to pay premiums annually rather than making annual gifts. You’ll want to coordinate this gift with other large gifts you’d like to make and discuss with your estate attorney to ensure that this makes sense in light of your overall gifting strategy.

After the policy matures

Ultimately, when you pass away, assuming the trust is both owner and beneficiary of the insurance policy, the trustees will collect the insurance proceeds. They will generally provide the insurance company with a death certificate and any forms required by the insurance company; once it receives those forms, the insurance company pays the policy proceeds to the trust.

At that point, your insurance trust becomes a regular trust funded with cash – the trustees can use or invest that cash in line with the terms of the trust, including providing your estate with liquidity by purchasing assets from your estate, and then manage the assets in the trust for the benefit of the beneficiaries.

What kind of insurance is in the trust depends on its purpose

If you want to provide for a surviving spouse as well as descendants, a policy on just your life makes the most sense in an insurance trust. Commonly, level-premium term or some kind of permanent insurance (whole life or universal life) are used in this situation.

If estate tax liquidity is a primary goal, you should consider having some kind of permanent policy, since term rates will likely become very expensive after the level-premium period expires and as you get older. Another type of policy that can work to offset estate expenses is second-to-die or survivorship, which insures two lives (typically the joint lives of a husband and wife).

For more information about different kinds of life insurance, see our WealthFocus article on Life Insurance.

Consult with a J.P. Morgan Advisor and your attorney to understand the alternatives and figure out whether an insurance trust may be the right solution for your situation.

Connect with a Wealth Advisor

Our Wealth Advisors begin by getting to know you personally. To get started, tell us about your needs and we’ll reach out to you.

Connect now


This material is for informational purposes only, and may inform you of certain products and services offered by J.P. Morgan’s wealth management businesses, part of JPMorgan Chase & Co. (“JPM”). Products and services described, as well as associated fees, charges and interest rates, are subject to change in accordance with the applicable account agreements and may differ among geographic locations. Not all products and services are offered at all locations. If you are a person with a disability and need additional support accessing this material, please contact your J.P. Morgan team or email us at for assistance. Please read all Important Information.

GENERAL RISKS & CONSIDERATIONS. Any views, strategies or products discussed in this material may not be appropriate for all individuals and are subject to risks. Investors may get back less than they invested, and past performance is not a reliable indicator of future results. Asset allocation/diversification does not guarantee a profit or protect against loss. Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. You are urged to consider carefully whether the services, products, asset classes (e.g. equities, fixed income, alternative investments, commodities, etc.) or strategies discussed are suitable to your needs. You must also consider the objectives, risks, charges, and expenses associated with an investment service, product or strategy prior to making an investment decision. For this and more complete information, including discussion of your goals/situation, contact your J.P. Morgan representative.

NON-RELIANCE. Certain information contained in this material is believed to be reliable; however, JPM does not represent or warrant its accuracy, reliability or completeness, or accept any liability for any loss or damage (whether direct or indirect) arising out of the use of all or any part of this material. No representation or warranty should be made with regard to any computations, graphs, tables, diagrams or commentary in this material, which are provided for illustration/reference purposes only. The views, opinions, estimates and strategies expressed in this material constitute our judgment based on current market conditions and are subject to change without notice. JPM assumes no duty to update any information in this material in the event that such information changes. Views, opinions, estimates and strategies expressed herein may differ from those expressed by other areas of JPM, views expressed for other purposes or in other contexts, and this material should not be regarded as a research report. Any projected results and risks are based solely on hypothetical examples cited, and actual results and risks will vary depending on specific circumstances. Forward-looking statements should not be considered as guarantees or predictions of future events.

Nothing in this document shall be construed as giving rise to any duty of care owed to, or advisory relationship with, you or any third party. Nothing in this document shall be regarded as an offer, solicitation, recommendation or advice (whether financial, accounting, legal, tax or other) given by J.P. Morgan and/or its officers or employees, irrespective of whether or not such communication was given at your request. J.P. Morgan and its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transactions.

Legal Entity and Regulatory Information.

J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment adviser, member FINRA and SIPC. Insurance products are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. Certain custody and other services are provided by JPMorgan Chase Bank, N.A. (JPMCB). JPMS, CIA and JPMCB are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states.

Bank deposit accounts and related services, such as checking, savings and bank lending, are offered by JPMorgan Chase Bank, N.A. Member FDIC.

This document may provide information about the brokerage and investment advisory services provided by J.P. Morgan Securities LLC (“JPMS”). The agreements entered into with JPMS, and corresponding disclosures provided with respect to the different products and services provided by JPMS (including our Form ADV disclosure brochure, if and when applicable), contain important information about the capacity in which we will be acting. You should read them all carefully. We encourage clients to speak to their JPMS representative regarding the nature of the products and services and to ask any questions they may have about the difference between brokerage and investment advisory services, including the obligation to disclose conflicts of interests and to act in the best interests of our clients.

J.P. Morgan may hold a position for itself or our other clients which may not be consistent with the information, opinions, estimates, investment strategies or views expressed in this document. JPMorgan Chase & Co. or its affiliates may hold a position or act as market maker in the financial instruments of any issuer discussed herein or act as an underwriter, placement agent, advisor or lender to such issuer.