Who Is the Settlor in a Life Insurance Policy?

The settlor of a life insurance policy is the person who creates the policy and designates a trust or entity to hold ownership. The settlor typically retains the right to name beneficiaries, but the trust or entity holds legal control over the policy's proceeds.

Key Responsibilities of the Settlor

The settlor establishes the policy, funds it, and chooses a trust as the owner. This decision is often part of estate planning to protect assets, reduce taxes, or control distribution.

Difference Between Settlor and Beneficiary

While the beneficiary receives the death benefit, the settlor owns the policy and can change beneficiaries or policy terms during their lifetime.

Common Trust Structures Used as Settlor Owners

• Revocable Living Trust – Allows the settlor to modify the policy and beneficiaries.
• Irrevocable Life Insurance Trust (ILIT) – Removes the policy from the settlor's taxable estate and locks in beneficiaries.

Why the Settlor Matters for Tax and Estate Planning

Because the trust holds the policy, the death benefit is excluded from the settlor's estate, potentially lowering estate taxes. The settlor's ability to change beneficiaries can also provide flexibility in changing circumstances.

When the Settlor Can Be a Corporate Entity

In some cases, a business or family office can act as the settlor, holding the policy on behalf of multiple beneficiaries or for corporate succession planning.