Life insurance and federal estate taxation Life insurance can be both a curse and a blessing. One's taxable estate includes the value of all life insurance of which the decedent was the "owner." Incidents of "ownership" include the right to borrow against the policy and change the beneficiary. Therefore, clients who own their own policies are often well-advised to make their children the owners of the same, or, in the alternative, to make an irrevocable trust the owner. 
The life insurance trust 
Frequently, children are too young, or otherwise not appropriate individuals to own policies. Let us, thus, consider how a special irrevocable "life insurance" trust might be used. A trust is created to be the owner of the life insurance policy. The client transfers his or her existing policies (or some of them) to the trust. The annual premiums on such policies are paid by the trust with funds that are gifted to the trust each year by the client. Life insurance proceeds can be used to provide the liquidity to pay death taxes. Oftentimes a "second to die" policy is purchased on the lives of both husband and wife, since money for taxes is not needed until the second death. Such policies are usually affordable, even for older individuals. Thus, the life insurance trust and the by-pass trust must be coordinated to accomplish the objectives of the Settlor. Other estate planning ideas What follow are other estate planning ideas. Not all of them are appropriate for every client. Back
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