16. The Irrevocable Life Insurance Trust

The irrevocable life insurance trust is a most effective way for you as an estate owner, to guarantee liquid funds for estate settlement purposes, and at the same time, remove the life insurance proceeds from your estate for federal estate tax purposes.

You would create a trust which would own and be the beneficiary of your life insurance policies. You would continue to make the premium payments. The trustee, with the proceeds from the life insurance, could be
granted the following options and advantages:

1. The life insurance funds could be available immediately to lend to
the executor or to buy assets from your estate. This option can
provide the liquidity your estate may need for funeral expenses,
taxes, and administrative expenses.

2. The funds would not be taxed in your estate even though you have
paid the premiums.

3. After receiving the needed liquid funds from the trust, the
executor would not be forced to sell other valuable assets - very
likely at a loss - to raise the necessary cash.

4. The trustee could buy estate assets at their fair market value.
As a part of your overall estate plan, the trustee would manage
these assets and distribute the proceeds to family members
according to your wishes.

5. In cases where your spouse may have a substantial estate,
ownership of the trust property could remain with the trustee
until the death of your spouse, and then be distributed to the
children (or other beneficiaries). In this way the trust property
would not be taxed in the spouse's estate, although during the
spouse's lifetime, he or she would have enjoyed the income from
the trust.

An irrevocable life insurance trust is an excellent estate planning tool. You must carefully consider the use of this trust and obtain proper counsel before you permanently give up all of your valuable rights to your life insurance policies, including your right to the cash values of the policies.

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