Life Insurance Proceeds & Terms of Trust

The terms of the trust, or contract, determine where and how life insurance proceeds will be split up. These terms are arranged by the insurer and the insured at the time that the life insurance policy is created and signed.

What the Terms Mean

The beneficiary is decided and named through the terms of the trust. This person receives the life insurance proceeds, or benefits.

Life insurance proceeds are income tax free. This means that the person that receives the benefits from your policy will not pay income taxes on the money that he/she gets. The one case in which proceeds are taxable is if the beneficiary paid the insured to be named such.  

The beneficiary can use the proceeds anyway that he or she sees fit, within the boundaries of the terms of the trust. According to the contract, a beneficiary may not receive proceeds until a certain age, before a certain number of years, of if certain conditions are not met. The insured can set terms without the beneficiary's knowledge, but the beneficary is bound by those terms.  

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