Managing Life Insurance Trusts
Life insurance trusts continue to play an important role in farm estate and business planning although perhaps not to the extent that was the case several years ago.1 The expanded applicable exclusion amount2 for federal estate tax and gift tax purposes ($5,340,000 for deaths or gifts in 2014) and the availability of portability3 on a permanent basis (which can effectively double the applicable exclusion amount for married couples) lessens the pressure to distance one’s self from property to reduce or eliminate federal estate tax at death. Nonetheless, such trusts entered into over the past several years can pose significant tax problems for the trustor (or the estate or both), some of which can be minimized or avoided with careful planning. A life insurance trust is a trust which becomes effective and receives life insurance proceeds at the insured’s death or holds life insurance policies during life in revocable or irrevocable form and receives the life insurance proceeds at the death of the insured. The focus in this article is on irrevocable life insurance trusts.