Beneficiaries✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
Naming a trust as the beneficiary of a life insurance policy is beneficial because:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A trust beneficiary provides controlled distribution: the trustee invests and pays out the proceeds according to the trust document - useful for minor children, spendthrift beneficiaries, or charitable goals - while the proceeds avoid probate because they pass directly to the trustee. A common structure is an irrevocable life insurance trust (ILIT), which also removes the proceeds from the insured's gross estate for federal estate tax purposes. The insured can continue owning the policy unless the policy is actually transferred into an irrevocable trust.
Why the other options are wrong
- B) A trust does not pay premiums. The owner or the trust itself must fund the premium payments, depending on the trust structure.
- C) Proceeds paid to a trust are generally income-tax-free under IRC Section 101, though distribution and estate-tax issues may arise.
- D) Transferring a policy into an irrevocable trust requires giving up ownership, but merely naming an existing trust as beneficiary does not.
Memory hook
Trust as beneficiary equals control, probate-free flow, and tax-smart placement.