A life insurance trust is a trust created by an individual (and sometimes the spouse) to own life insurance on the life of the individual and/or the individual’s spouse. The advantage of using the life insurance trust, rather than simply owning the life insurance outright, is that the life insurance proceeds received by the life insurance trust at the death of the individual are not included in the individual’s estate.

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An irrevocable life insurance trust is used to minimize federal estate taxes and has the following features. Some of these features are undesirable, but are required in order to gain the estate tax advantage of not including the life insurance in your estate.

  • Irrevocable: A life insurance trust is irrevocable, that is, after it has been established, none of its terms can be changed.
  • Trustee: As with all trusts, a trustee is required for a life insurance trust. The trustee can be an individual or a bank. However, the trustee cannot be you.
  • Obtaining Life Insurance: An application for new life insurance should be made by the trust, not by you as an individual. It is possible to transfer an existing life insurance policy into a trust, but if you do, then the life insurance will still be included in your estate unless you live for at least three more years after the life insurance is transferred.
  • Ownership/Beneficiary: The trust will be both the owner and the beneficiary of the life insurance. This means that at your death, the life insurance proceeds will be paid into the trust, and not directly to your estate or other beneficiaries.
  • Paying the Premiums: The trust will need to make the insurance premium payments to the life insurance company. The trust will not likely have any funds to make the premium payments, and so you will need to transfer funds into the trust from time to time to make the premium payments. You should not make the insurance premium payments directly yourself.
  • Collecting the Proceeds: At the time of your death, the life insurance proceeds will be paid into the trust. In many cases, the estate will need the life insurance proceeds to pay estate taxes. The life insurance proceeds can be made available to the estate by loaning the proceeds to the estate or by having the trust buy assets from the estate.


If you ever need help, speaking to an estate planning attorney is a smart idea. The cost of speaking to an attorney is worth it compared to the possibility of making a costly mistake.

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