Skip to Main Content
 Canaccord Genuity Corp.

Life Insurance and Your Beneficiaries: Consider a Trust

Jarrett McKay - Nov 10, 2015

When purchasing a life insurance policy, one of the more important decisions that you must make is in the selection of a beneficiary for the policy. In some cases, there are situations in which you may not wish the intended beneficiary to have insurance proceeds paid directly to them.


As an option, it may make sense to create an insurance trust to be named as the beneficiary of the policy instead of an individual. Insurance proceeds will then be paid to a trustee identified in your will or in a separate trust agreement.


Here are some reasons why this may make sense:


Insurance trusts are most commonly used when the intended beneficiary of the insurance policy is a minor child, since the child is generally not legally entitled to receive the proceeds of the policy until he or she reaches the age of majority. Without a trust, the insurance proceeds could be paid to a public trustee and court approval may be required to make payments to the minor beneficiary.

Setting up an insurance trust may also be appropriate in situations in which the intended adult beneficiary is too immature or has other issues that would discourage placing funds directly into his or her hands. Other potential benefits include: control over the timing of the receipt of funds and/or the manner in which the funds are used and protection of the insurance proceeds from creditors of either the estate or of the beneficiary.


A properly constructed insurance trust may also provide certain financial benefits. There may be income tax benefits if the trust is considered a testamentary trust, as income earned in the trust would be taxed at graduated tax rates for the first 36-months, after which time the trust would be taxed at the highest marginal tax rate and a tax benefit could potentially be achieved by allocating the income of the trust to beneficiaries in a lower income tax bracket. In addition, an insurance trust can be used to avoid probate on the insurance proceeds in applicable provinces and may protect beneficiaries who are receiving provincial disability benefits from a reduction in support payments.


As always, please seek professional advice when considering the creation of an insurance trust.





This newsletter is solely the work of the author for the private information of clients. Although the author is a registered Investment Advisor at Canaccord Genuity Corp., this is not an official publication of Canaccord Genuity Corp. and the author is not a Canaccord Genuity Corp. analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone, and are not necessarily those of Canaccord Genuity Corp. The information contained in this newsletter is drawn from sources believed to be reliable, but the accuracy and completeness of the information is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability. This information is given as of the date appearing on this newsletter, and neither the author nor Canaccord Genuity Corp. assume any obligation to update the information or advise on further developments relating to information provided herein. This newsletter is intended for distribution in those jurisdictions where both the author and Canaccord Genuity Corp. are registered to do business in securities. Any distribution or dissemination of this newsletter in any other jurisdictions is prohibited. The holdings of the author, Canaccord Genuity Corp., its affiliated companies and holdings of their respective directors, officers and employees and companies with which they are associated may, from time to time, include the securities mentioned in this newsletter.


The preceding information is for general information only and does not constitute tax advice. All investors should consult with a qualified tax accountant.

Tax & Estate advice offered through Canaccord Genuity Wealth & Estate Planning Services.