Are there any special rules that apply to life insurance and trusts?
Almost anything you want to do is probably okay. If possible, I prefer that the Trustee not pay the estate taxes directly. Instead, I recommend he (or she) use the life insurance proceeds to buy assets from the estate and let the personal representative of the estate pay the estate taxes. As an alternative, the Trustee can lend your estate enough money so the personal representative can pay the taxes. Be careful, though, if the beneficiaries named in your Will aren’t the same ones you named in your trust. You don’t want to pit beneficiaries against one another. Everyone loses in that situation. Whatever you do, document it so you have a clearly identifiable paper trail should anyone question your actions. If you use either of these techniques, there should be enough money to pay the tax bill without the personal representative having to “sell off” the estate. What if my assets are tied up in Individual Retirement Accounts or Pension Plans? The estate tax bill can be a real problem for
