An Irrevocable Life Insurance Trust

Posted on November 24, 2010


An Irrevocable Life Insurance Trust is beneficial in that it keeps the life insurance policy proceeds from being taxed as part of the estates of the insured party, and the wife or husband of that party. It is an legal method to dodge estate taxes on life insurance benefits.
Life insurance proceeds are taxable under estate taxing, which of course is a tax on the transfer of property at the time of the grantor’s death.
If  Jim has died and there was a life insurance policy covering him, but he was not the one who signed up for that policy, then the proceeds of that policy will not be subject to Jim’s estate tax.
If Jim signs up for a life insurance policy, and leaves the money to his son, Jim, Junior, then the insurance monies  will be taxed, but if Jim leaves his life insurance to his wife, the monies will not be taxed, though later if Ethel dies, they may be taxed then.