Variable Insurance Trust: A Guide to Your $100,000+ Insurance Policy

Variable insurance trusts (VITs) have become increasingly popular as a way to protect and grow wealth. In 2022, the market size for variable insurance trusts was estimated at $100 billion, and it is projected to grow to $150 billion by 2027. This growth is being driven by a number of factors, including:

• The increasing popularity of variable annuities, which are a type of insurance policy that provides a variable rate of return.
• The desire for greater control over investments.
• The need for tax-efficient wealth transfer strategies.

What is a Variable Insurance Trust?

A variable insurance trust is a type of trust that is funded with a life insurance policy. The trust is irrevocable, which means that once you create it, you cannot change it. The trustee of the trust is responsible for managing the assets of the trust, including the life insurance policy.

How Does a Variable Insurance Trust Work?

When you create a variable insurance trust, you transfer ownership of a life insurance policy to the trust. The trust then becomes the owner of the policy, and the trustee is responsible for paying the premiums. The death benefit from the policy is paid to the trust, and the trustee then distributes the proceeds to the beneficiaries of the trust.

Benefits of a Variable Insurance Trust

There are a number of benefits to using a variable insurance trust, including:

• Tax-free growth: The earnings on the investments in the trust are not subject to income tax. This allows the trust to grow your wealth more quickly than a taxable investment account.
• Asset protection: The assets in the trust are protected from creditors. This can be important if you are concerned about the potential for lawsuits or other financial claims.
• Estate planning: A variable insurance trust can be used to transfer wealth to your heirs in a tax-efficient manner. The death benefit from the life insurance policy is not subject to estate tax, and the trust can be used to reduce or eliminate the estate tax on your other assets.

How to Create a Variable Insurance Trust

To create a variable insurance trust, you will need to work with an attorney. The attorney will help you to draft the trust document and transfer the ownership of the life insurance policy to the trust. You will also need to appoint a trustee to manage the trust.

Tips for Using a Variable Insurance Trust

Here are a few tips for using a variable insurance trust:

• Consider the tax implications: The tax consequences of a variable insurance trust can be complex. It is important to work with an attorney and a tax advisor to make sure that you understand the tax implications before you create a trust.
• Choose the right trustee: The trustee of a variable insurance trust has a lot of responsibility. It is important to choose a trustee who is trustworthy, competent, and experienced.
• Monitor the trust: It is important to monitor the trust regularly to make sure that it is meeting your objectives. You should review the trust's investments and make sure that the trustee is fulfilling his or her duties.

Conclusion

Variable insurance trusts can be a valuable tool for protecting and growing your wealth. However, it is important to understand the benefits and risks before you create a trust. By working with an attorney and a tax advisor, you can make sure that a variable insurance trust is the right choice for you.

FAQs

1. What is the difference between a variable insurance trust and a revocable trust?

A revocable trust is a type of trust that can be changed or revoked at any time. A variable insurance trust is an irrevocable trust, which means that once you create it, you cannot change it.

2. What are the tax consequences of a variable insurance trust?

The tax consequences of a variable insurance trust can be complex. The earnings on the investments in the trust are not subject to income tax, but the death benefit from the life insurance policy is subject to estate tax. It is important to work with an attorney and a tax advisor to make sure that you understand the tax implications before you create a trust.

3. What are the costs of a variable insurance trust?

The costs of a variable insurance trust can vary depending on the complexity of the trust and the fees charged by the attorney and the trustee. You should ask for a fee schedule from the attorney and the trustee before you create a trust.

4. What are the benefits of a variable insurance trust?

There are a number of benefits to using a variable insurance trust, including:

• Tax-free growth
• Asset protection
• Estate planning

5. What are the risks of a variable insurance trust?

The risks of a variable insurance trust include:

• The potential for investment losses
• The potential for estate taxes
• The potential for trustee mismanagement

6. How can I avoid the risks of a variable insurance trust?

You can avoid the risks of a variable insurance trust by:

• Working with an attorney and a tax advisor to make sure that you understand the benefits and risks before you create a trust
• Choosing the right trustee
• Monitoring the trust regularly