A life insurance policy is owned by an irrevocable life insurance trust. Who has the authority to change the beneficiary designation on the policy?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
When a trust owns a life insurance policy, the trustee holds the policy as a trust asset and exercises the policyowner's rights - including changing beneficiaries where the trust document permits - in accordance with the trust's terms. The insured has no personal authority over the designation simply because the policy insures his or her life. In an irrevocable trust, the grantor typically surrenders control over the policy: retained incidents of ownership could pull the death proceeds back into the grantor's gross estate for estate tax purposes and defeat the trust's planning purpose. Thus the trustee is the party who can act on the policy.
Why the other options are wrong
- B) The insured supplies the measuring life but holds no ownership rights when the policy is owned by a trust. Ownership follows the trust instrument, not the person whose life is insured.
- C) Beneficiaries have no standing to alter a designation. Their interest in the proceeds vests only at the insured's death and does not include the power to change the policy.
- D) The grantor of an irrevocable trust normally gives up control over the policy. Personal changes would undermine the trust's estate-planning function and could cause adverse estate tax consequences.
Memory hook
Trust owns it, trustee moves it; the insured just stays alive.