Incorporating An Insurance Preservation Trust In Your Estate Planning Process

Robin Wells

An insurance preservation trust is an irrevocable trust, formed with the insured's life insurance policy as the asset. It's a viable estate planning option because policy proceeds aren't taxable.


With an insurance preservation trust, the insured gives ownership of his or her policy to the trust. In return, the trust monitors the policy and makes premium payments. When the insured dies, the trust gets the proceeds and distributes according to the trust agreement.

Legacy for Progeny

Often, the goal of many insurance policy holders is to leave enough money to allow loved ones to live a life of comfort. The insurance preservation trust is a popular vehicle to preserve and manage assets. It provides financial benefits for a spouse's needs and the needs of children.

  • Policy owners also can set up an insurance preservation trust to pay outstanding estate taxes.

The insured maintains control of the policy by selecting beneficiaries and their disbursement amounts.

Reduction of Estate Taxes

One way for policyholders to increase their asset evaluation is to keep estate taxes to the minimum amount at the time of death. Generally, insured people set up the insurance preservation trust when the total value of their assets is more than the maximum allowable value.

They must set up the insurance preservation trust at least three years before their demise. If the insured dies within the three-year period, the trust agreement won't apply, and the insurance proceeds remains taxable along with the rest of the estate.

Alternate Policy

A second-to-die insurance policy is another form of an insurance preservation trust. With these policies, when the first insured dies, the surviving insured gets the entire estate, and the insurer pays the policy proceeds when the second insured dies. This postpones the need to pay estate taxes immediately. The beneficiaries can use the policy proceeds to pay relevant taxes or any other purpose they choose.

Setting Up the Trust

To set up an insurance preservation trust, the policy owner must choose a trustee and select beneficiaries. The trustee and insured will sign trust agreement, and the trustee will open a checking account for the trust. The trustee will use this account to pay premiums and distribute money to beneficiaries. Other crucial set up steps include the following:

  • Get a tax ID. Use Form SS-4, Application For Employer Identification Number. A variety of organizations must use this form to get an EIN, including trusts.
  • Pay for new policies with a check. The trustee will deposit the check into the trust's checking account and then buy the new policy with money from that account.
  • Complete IRS Form 712, which is the Life Insurance Statement. This form must be completed for each policy that the policyholder transfers to the trust.

An insurance preservation trust is complicated and time consuming, but it's a valuable estate-planning tool. Contact your insurance company like Bailey Insurance Group today to learn more about incorporating the insurance preservation trust in your estate planning process.