I thought this would be simple, but researching hasn’t given me a clear answer. If I’m married and want life insurance for both of us, can we put it in a trust, naming each other as trustees and beneficiaries, with our children as contingent beneficiaries? Our oldest will soon be an adult, and I trust him if something happens to both of us after he turns 18.
How do we set up the trust? I don’t fully understand it, but from what I’ve read, you should set up the trust before the life insurance policy to avoid a 3-year IRS lookback if you transfer the policy later. I briefly spoke with Policy Genius, but they said the 3-year lookback isn’t a thing, and it felt like they just wanted to rush and sell me something, so I ended the call. It was frustrating and felt like high-pressure sales.
Trusts provide guidance on managing assets and distributing them to beneficiaries. Assets in a trust pass outside of probate. The IRS lookback is real, but it’s only a concern if your net worth exceeds around $13 million (for married couples after 12/31/25) and you’re subject to estate taxes. Usually, you need a lawyer to set up a trust properly. Unless you’re extremely wealthy, it’s better to get life insurance in place first and then take time to work with a lawyer on your asset plan.
Edit: Updated the expiration of the Trump estate tax cuts to 12/31/2025, with the limit being around $27 million until then.
The answers depend on the type of trust, the policies you’re considering, your wealth, and any estate planning you’ve done. If you own a policy and transfer it to a trust, there’s a 3-year rule if the policy is gifted. If the trust buys the policy, there’s no such rule.
For a revocable trust, you can set it up with your spouse as trustee and beneficiary, and your children as named beneficiaries. For an irrevocable trust, it’s different, as it’s typically for those with enough wealth to remove assets from their taxable estate by giving up control.
Why do you want to put the life insurance in a trust?
People usually create a life insurance trust for wealth transfer tax reasons. You generally don’t need to worry about this unless you expect to have significant wealth transfer tax exposure. Currently, the exemption amount is $13.61 million per spouse ($27.22 million per couple). This will likely drop to between $7 million and $7.5 million per spouse after January 1, 2026. If your combined net worth with your spouse is less than $14 million, it doesn’t make much sense to create a typical life insurance trust.
The three-year lookback rule applies if you own a life insurance policy and then transfer it into a trust. The purpose of a life insurance trust is to exclude the policy’s value and death benefit from your gross estate for federal estate tax. The three-year lookback rule can cause the policy to be included in your gross estate, but this doesn’t matter if you’re below the exemption amount.
You likely don’t need a life insurance trust or wealth transfer tax planning. Instead, you might need some basic estate planning, which could include a revocable trust. A revocable trust can be the owner and/or beneficiary of a life insurance policy.
Talk to an estate planning attorney for more guidance.
If your child is under 18 and named as a beneficiary, the insurance company will establish a trust for their benefit. You also need a will that specifies who the guardian will be if they need to access the money for the child.
You can simply name the child as beneficiary and list the UTMA custodian right with the life insurance company so that they don’t have to hold anything up or need any documents.
If your child is about to turn 18 and you trust them with the life insurance money, you might not need a trust.
The trust you mentioned gives instructions on how to spend the funds. If you don’t want that, a simple will is enough.
You might be mixing this up with an irrevocable life insurance trust. Unless you are dealing with an estate worth tens of millions, you likely don’t need that type of trust.
Life insurance proceeds pass outside of probate, so a will has no authority over how the money is spent. If he wants to control the money from the grave, he does need a trust.
There are two main types of trusts for what you want to do.
The first type is an irrevocable trust. This trust helps pass assets while avoiding probate and estate taxes, but it only affects a small number of people. With these trusts, you need to be aware of the lookback rule.
The second type is a revocable living trust. You don’t have to worry about a lookback with this type. While it is included in your estate, that usually doesn’t matter because very few people owe estate taxes. A revocable living trust functions like a fancy will. It can distribute your assets as you wish and bypass probate.
You can talk to an estate planning attorney to set one up. Expect to spend between $1,000 and $2,000.