Yes, a Wyoming Statutory Trust (WST) can own life insurance policies.
In fact, Wyoming is a premier jurisdiction for such arrangements due to its robust “trustee-friendly” statutes. Under the Wyoming Uniform Trust Code, trustees are granted broad powers to invest in and manage various types of property, including life insurance.
Why use a Wyoming Statutory Trust for Life Insurance?
While many people use a traditional Irrevocable Life Insurance Trust (ILIT), the Statutory Trust structure (often used for business or investment purposes) offers several unique advantages:
- Explicit Power to Pay Premiums: Wyoming Statute § 4-10-816(a)(xxvi) explicitly authorizes a trustee to “purchase and pay from trust principal the premiums on life insurance.”
- Liability Protection: A WST functions similarly to an LLC. It provides a “corporate veil” that shields the trust’s assets (like the cash value of a policy) from the personal creditors of the beneficiaries or the settlor.
- Asset Protection: Wyoming is a “self-settled” trust state. This means that under certain conditions, you can be both the creator and a beneficiary of the trust while still enjoying protection from future creditors.
- Tax Efficiency: Wyoming has no state income tax, no capital gains tax, and no estate/inheritance tax. This makes it an ideal “situs” (legal home) for a trust holding high-value policies.
- Privacy: Wyoming does not require trusts to be registered with the state, keeping the details of the policy and its beneficiaries out of the public record.
Key Legal Requirements
To ensure the trust is the valid owner and the proceeds stay out of your taxable estate, several rules must be followed:
- Insurable Interest: The trust must have an “insurable interest” in the person being insured (usually established by the relationship between the settlor and the beneficiaries).
- Incidents of Ownership: To avoid estate taxes, the person whose life is insured should not retain “incidents of ownership” (like the power to change beneficiaries or borrow against the policy) in their personal capacity.
- The “Three-Year Rule”: If you transfer an existing policy into the trust and die within three years, the IRS may still include the proceeds in your taxable estate. This is often avoided by having the trust apply for a new policy directly.
Would you like me to compare the benefits of using a Wyoming Statutory Trust versus a Wyoming LLC for holding life insurance?