What is the primary purpose of an insurance trust?

The primary purpose of an insurance trust is as an estate planning tool for managing life insurance benefits. By placing a life insurance policy into a trust, the policyholder can ensure that the proceeds are distributed according to specified wishes upon their passing. This can help avoid probate, ensuring that beneficiaries receive the funds quickly and according to the policyholder's intentions.

Moreover, using an insurance trust can provide benefits such as maintaining control over the distribution of assets and potentially protecting the benefits from creditors. This strategy allows for better management of the life insurance proceeds and can integrate smoothly with the overall estate plan, making it a vital component for individuals looking to maximize the effectiveness of their estate planning efforts.

In contrast, while an investment strategy could involve life insurance policies as part of a component to build wealth, and reducing income tax liability may be a secondary benefit in some cases, the core function of an insurance trust focuses on the management and distribution of life insurance proceeds specifically. A method for selling insurance policies does not align with the primary function of a trust, which centers around the management of assets rather than transactions for selling insurance.