insurance policy with the trust as the owner and beneficiary. Upon your death, the trust receives the death benefit
— free of income and estate taxes — and then makes distributions according to the terms of the trust. If you have
an existing policy, you can give the policy to an ILIT but must survive for three years to avoid estate tax on the death
benefit. It may be possible to avoid the three-year rule; if this is important to you, discuss your options with your
estate planning attorney.
THE ROLE OF LIFE INSURANCE IN AN ESTATE PLAN
Life insurance policies are an excellent resource to handle the immediate financial needs that can be created upon
death. Life insurance can provide financial support
for the following needs:
• Financial support for a surviving spouse
• Income for child, family members and those with special needs
• Liquidity to pay estate taxes
• Funding business buy-sell liquidation agreements
• Provide financially for a charity or community organization
KEEP THE GOAL IN MIND
Confused yet? Instead of trying to wrap your mind around all the vocabulary or the variety of trusts, you should focus
on your goals and engage a financial advisor and estate planning attorney to help you decide how best to achieve
them. A financial advisor can recommend an estate planning attorney who will be right for your situation, and the
advisor can work with your attorney on how assets such as life insurance, annuities and investments can impact
your estate.
GOAL
TRUST
BENEFIT
• Manage disposition of assets
upon death or disability of
grantor
• Revocable living trust
• Assets held by trust are not
subject to probate
• Generally takes effect upon
death or disability of grantor
• Provides privacy as to donor’s
assets and wishes
• Control and manage assets for
minor children
• Living or testamentary trust
• Control over principal and income of the trust and when it is
distributed
• Control assets for beneficia• Living or testamentary trust with • Protection from creditors of
ries who are unable to manage
spendthrift provisions
beneficiary may be available
assets themselves or might face
(sometimes including divorcing
creditor claims
spouses)
• Provide for individual with special needs
• Special needs trust
• Can provide for needs beyond
support only
• Generally designed to avoid
disqualifying beneficiary from
government programs
• Provide for non-citizen surviving
spouse
• Qualified domestic trust
• Allows deferral of estate tax tha
would otherwise be payable at
the death of the first spouse
• Manage assets for benefit
of others while removing the
assets from the grantor’s estate — reducing the value in the
calculation of estate taxes
• Irrevocable trust
• Assets are no longer owned by
the individual so are not part of
the estate