A life insurance trust is a special type of irrevocable trust designed to own life insurance policies on the life(s) of the grantor(s).
- Estate Tax Savings - allows sizable life insurance death benefits to be distributed to beneficiaries free of estate tax.
- Gift Tax Exemption - can often be funded with gifts that fall within annual gift tax exclusion amount.
- Estate Consolidation - life insurance trust can become the receptacle into which other assets are transferred upon grantor's death.
The estate tax savings may only be achieved if ownership of the life insurance policy is separate from the person whose life is being insured. A bank is the ideal trustee for this purpose, since administration of the trust requires regular monitoring and documentation. In addition, an experienced bank trustee will know what types of documentation must be created to achieve the tax benefits of the life insurance trust.