One common financial planning strategy used by people with large taxable estates is to have an irrevocable trust own life insurance policies. With an irrevocable insurance trust the client’s beneficiaries would be able to receive the full value of the life insurance policy without having it subjected to any estate taxes. This article gives an example of how an insurance trust can be used by partners in a closely held business. The business owners might have life insurance that will purchase the decedent partners shares. Under a buy-sell arrangement the client’s irrevocable trust would purchase the other decedent partners shares as the owner of the insurance. It is important to consider whether the trust will have insurable interest, and also any possible gift tax consequence from paying premiums.
See John P. Dedon, Buy-Sell Arrangements and Irrevocable Insurance Trusts, The National Law Review, July 17, 2015.
Special thanks to Jim Hillhouse for bringing this article to my attention.
