What is the function of a spendthrift trust in life insurance proceeds?

• A. To protect insurance proceeds that have not yet been paid to the beneficiary from creditors
• B. To guarantee immediate payment to the beneficiary
• C. To ensure the beneficiary can assign benefits to creditors
• D. To increase the death benefit automatically

Answer: (A)

A spendthrift trust keeps life insurance proceeds safe from the beneficiary’s creditors by having a trustee manage and control how and when the money is paid out. When the policy proceeds are directed into such a trust, the beneficiary cannot access the funds directly or pledge them to creditors, and the trustee determines distributions. This arrangement protects the funds from being seized by creditors and helps prevent reckless spending. It does not guarantee immediate payment, nor does it enable the beneficiary to assign benefits to creditors or increase the death benefit automatically.