What would be a valid reason for naming a trust as the beneficiary of a life insurance policy instead of naming an individual?

Naming a trust as the beneficiary of a life insurance policy provides management of proceeds, which is one of the primary advantages. When a trust is named as the beneficiary, the proceeds from the life insurance policy are directed to the trust rather than to an individual beneficiary. This allows the trustee to manage the funds according to the terms of the trust.

For instance, if a policyholder is concerned about ensuring that their life insurance proceeds are handled responsibly for their dependents, they can set up a trust to manage these funds. The trustee can then distribute the money according to specific instructions, such as making periodic payments, covering education costs, or addressing any other needs the beneficiaries may have over time. This level of control and management can bring peace of mind to the policyholder, knowing that the funds will be used as intended.

While tax implications may vary based on the structure of the trust, the primary purpose of naming a trust as the beneficiary often revolves around providing controlled management of the funds, especially in the context of minors or beneficiaries who may not be able to responsibly manage a large sum of money directly. Trusts can also help with avoiding probate, but that is more about the distribution process rather than the management of funds itself.