Once you develop a life insurance trust, your life insurance policy must be transferred into that trust. It means the proceeds from the life insurance policy will be paid to the trust. Through the terms of the trust, the trustmaker or grantor can:
Choose a trustee to administer the trust (i.e., pick someone who is not a beneficiary of the life insurance policy to have control over the trust)
Determine how the premiums will be paid
Select beneficiaries to the policy
Lay out the terms for how the payouts from the policy will be paid to one or more beneficiaries.
In order for a life insurance trust to be legal and effective, it must meet the following basic requirements:
The life insurance trust has to be irrevocable.
The person who is creating the trust cannot be the trustee.
The trust has to be in place for at least three years prior to the death of the person who is the subject of the life insurance policy.