A life insurance trust can be a good strategy for avoiding estate taxes because it removes the proceeds of a life insurance policy from the taxable estate of the policyholder. When a person dies, the value of their estate is subject to estate tax, which can be a significant expense.
However, by transferring ownership of a life insurance policy to a trust, the proceeds from the policy are not considered part of the estate and are therefore not subject to estate taxes. Instead, the proceeds are distributed directly to the trust beneficiaries according to the terms of the trust agreement.
By establishing a life insurance trust, a person can potentially reduce their estate tax liability and ensure that their loved ones receive the intended proceeds from their life insurance policy. Additionally, the trust can provide certain benefits such as creditor protection, flexibility in managing the policy, and control over the distribution of the proceeds.
It’s important to note that setting up a life insurance trust can be a complex process and may require the assistance of a qualified estate planning attorney. It’s also important to review the trust periodically to ensure that it remains in compliance with current tax laws and reflects the policyholder’s current wishes and objectives.
