Role of the Trust Document in a Revocable Life Trust

Sometimes called a “trust indenture” or “trust agreement,” this document sets forth the agreement between the parties (and serves as evidence for the other parties in interest in every trust agreement, the federal and state taxing authorities) and spells out:

  • how assets are to be managed;
  • who will receive income and capital from the trust;
  • how the trust income and capital is to be paid out; and
  • when (date or beneficiary’s age) or under what circumstances (birth, death, marriage, etc.) the income and capital is to be paid to each beneficiary.
  • Where a trust is to be the beneficiary of life insurance or is to hold one or more policies, specific wording should be provided in the trust document to enable the trustee to accept the proceeds and hold the policies. Even more important, if the trustee is to purchase life insurance on the grantor’s life or the lives of others, or is to pay premiums on one or more such policies, it is necessary that the terms of the trust specifically authorize such action. Many states do not permit the investment of trust assets in life insurance unless authorized by the terms of the trust or under provisions of the state’s trust laws.

Learn more about Revocable Life Trusts.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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