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At death, the death proceeds of life insurance you own are included in your estate for estate tax purposes. This adverse result can be avoided by transferring the life insurance policy to an irrevocable life insurance trust that would become the owner and beneficiary of the policy. The dispositive provisions of the trust would mirror the provisions of your revocable living trust or will. While this trust will be irrevocable, an independent trust protector can be granted significant flexibility to modify the terms of the trust to account for unanticipated future developments. If you are concerned about accessing the cash value of the insurance during your lifetime, the trust can be carefully drafted so that the trustee can make loans to you during your lifetime or so that the trustee can make distributions to your spouse during your spouse's lifetime. Even with these provisions, the life insurance proceeds will not be included in your estate for estate tax purposes. These trusts can be created by you individually (and typically own an individual policy on your life) or they can be created by your and your spouse jointly (and own a survivorship policy). Whether it is an individual or joint trust will depend upon the specific purposes for the insurance, as is discussed more fully in the article Life Insurance.


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