An irrevocable life insurance trust is a trust that is funded by a life insurance policy, or the proceeds from life insurance. It is used to avoid estate inclusion and also, perhaps, taxes on the estate. If this policy is structured with the proper care, a life insurance trust can help lessen estate tax and gift taxes. Typically, irrevocable life insurance trust is both an owner and beneficiary of the life insurance policy. This kind of trust make it much easier for family and friends to close estates proceeding as quickly and as painlessly as possible and transferring without BIG estate tax bite.
During the lifetime of the insured or policy holder, the donor is the one who creates the irrevocable life insurance trust. This trust has includes a withdrawal provision called Crummy power, which makes it possible for the beneficiaries to take payments that were made to the trust. The donor also names a trustee who is independent. In addition, he or she will make gifts to the trust the payments made on the premium. Finally, report any income on the trust (if there is any) on his or her annual income tax return and file any gift tax return under the generation-skipping transfer tax (GST) tax exemption.