Santa Clarita Living Trusts Lawyers - Estate planning attorneys for Santa Clarita and Beyond

Life Insurance Trusts

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Oftentimes people don't realize that life insurance counts towards their entire "estate." In some cases, if such a policy paid out, it would put the estate over the exemption amount for that year and therefore subject the estate to "estate taxes." However, by removing the life insurance from your name and placing it in an Irrevocable Life Insurance Trust, you have effectively removed the insurance policy from your estate. It will benefit your heirs but it won't count against your taxable estate for estate taxes.

Once the life insurance policy is placed in the trust, the insured person no longer owns the policy, which will be managed by the trustee on behalf of the policy beneficiaries when the insured person dies.

A life insurance trust is often used to set aside cash proceeds that can be used to pay estate taxes, as the life insurance policy should be exempt from the taxable estate of the decedent.

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 dies. But if he 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.)

There are many rules and regulations regarding Life Insurance Trusts. While they can be beneficial in many circumstances, they are not without their drawbacks.