Question

What would be the disadvantage of naming a trust as a beneficiary of a life insurance policy?

A. Trusts cannot be formed for life insurance purposes.
B. Trust administration fees would reduce policy proceeds.
C. Trusts cannot be used if a minor is the beneficiary.
D. The trustee must be a bank or brokerage.

Answer 1

The disadvantage of naming a trust as a beneficiary of a life insurance policy is that trust administration fees would reduce policy proceeds.

Step-by-step explanation:

The disadvantage of naming a trust as a beneficiary of a life insurance policy is that trust administration fees would reduce policy proceeds.

When a trust is named as the beneficiary, the insurance company pays the policy proceeds to the trust instead of directly to the beneficiaries. The trust then incurs administration fees for managing the assets, which can reduce the amount of money that ultimately reaches the beneficiaries.