What is a life insurance trust?
A life insurance trust is set up for the purpose of owning a life insurance policy. The proceeds of life insurance are rarely subject to probate, unless the insured’s estate is the beneficiary or all of the named beneficiaries pre-decease the insured. If the insured is the owner of the policy, however, it will be subject to estate tax when he dies. By transferring ownership to a life insurance trust, the entire amount of the death benefit paid escapes the estate tax. Either way, the proceeds are usually exempt from income tax. The IRS sets forth several restrictions on life insurance trusts. You should consult an estate planning attorney to determine if this arrangement is desired in your estate planning.
A life insurance trust is a trust that is set up for the purpose of owning a life insurance policy. If the insured is the owner of the policy, the proceeds of the policy will be subject to estate tax when he or she dies. But if he or she transfers ownership to a life insurance trust, the proceeds will be completely free of estate tax. The proceeds will be exempt from income tax either way. Given current federal estate tax rates of up to 45%, a life insurance trust can save hundreds of thousands of dollars in estate taxes.
A life insurance trust is set up for the purpose of owning a life insurance policy. The proceeds of life insurance are rarely subject to probate, unless the insureds estate is the beneficiary or all of the named beneficiaries pre-decease the insured. If the insured is the owner of the policy, however, it will be subject to estate tax when he dies. By transferring ownership to a life insurance trust, the entire amount of the death benefit paid escapes the it is exempt from estate tax. Either way, the proceeds are usually exempt from income tax. The IRS sets forth several restrictions on life insurance trusts. You should consult an estate planning attorney or professional to determine if this arrangement is desired in your estate planning.
Spectacular estate tax savings can be achieved through the use of life insurance trusts which can keep all of the life insurance proceeds out of both the estate of the husband and the wife. Because of the large tax savings, strict rules apply with regards to the provisions of the trust, the duties of the trustee and manner in which the policy premiums may be paid.
