What are the tax advantages to setting up an irrevocable trust to own an insurance policy?
A. Although life insurance is generally not subject to income taxation upon the death of the insured, it is subject to estate taxes if the insured owns the policy (or has other ownership rights). Owning a life insurance policy results in all or a portion of the insurance proceeds being included in the insured’s estate and therefore taxed when death occurs, thereby substantially defeating the purpose of buying the life insurance. While it is true that life insurance which is received by a spouse is not subject to estate or inheritance taxes because of the unlimited marital deduction (assuming the surviving spouse is a citizen of the United States), those same proceeds will be included in the spouse’s estate later on when he or she dies. Therefore, life insurance trusts are often a good idea even when there is a surviving spouse to receive the proceeds. Life insurance trusts offer a number of significant advantages over outright ownership. For starters, the trust will insulate the procee
Related Questions
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