THE LIFE INSURANCE TRUST

While proceeds from life insurance are not included in a persons taxable income, they are included in a persons taxable estate. To repeat, life insurance proceeds are not subject to income tax; but, they are subject to estate tax.

To understand this possible tax liability, you must understand that each life insurance policy has three offices. They are:

1.) The insured, 2.) The owner, 3.) The beneficiary.

You will readily recognize that the insured and the owner are usually the same person. One person holds two offices.

If life insurance is owned by the decedent, the life insurance proceeds are in the taxable estate; hence, a tax may be due.

When people who have a large taxable estate purchase life insurance to pay the tax, they often make the mistake of adding to their taxable estate by the purchase of life insurance.

For example, a widowed man who has a $10,000,000 estate might decide to purchase a $5,000,000 life insurance policy to pay all of the federal estate taxes that will be due at his death.

If he takes ownership of that policy (if he holds both the offices of insured and owner), his taxable estate has grown to $15,000,000. And the tax bite has grown to nearly $8,000,000.

But, if he creates a life insurance trust, gives the trust money and lets the trust buy the life insurance policy, the trust is the owner ... and substantial amounts of federal estate tax are saved.

Why? Because the owner doesn't die.

You can also use life insurance to be sure your charitable causes are cared for at your death. If you want to leave an insurance policy to our cause, just name "The Foundation" as the beneficiary of the policy.