Charitable Remainder Trusts
26. Benefits of Irrevocable Life Insurance Trust
So, now you know that life insurance can be an inexpensive way to replace the gifted asset. Using a life insurance trust will keep the proceeds out of your taxable estate, so the proceeds will go to your children free of probate, with no income or estate taxes.
Using a life insurance trust will also give you more control.
You could name someone else as the owner of the policy - that would also keep it out of your taxable estate. But then you would have no control over the insurance. The person you name as owner could change the beneficiary, withdraw all the cash value, or even cancel the policy.
With a life insurance trust, you minimize these risks. Plus you can keep control over when your children will receive the proceeds. For example, instead of getting all that money at one time, you could have them receive it in installments. You can keep the proceeds in the trust for years, making periodic distributions to your children and grandchildren. And any proceeds that remain in the trust are protected from irresponsible spending and creditors...even ex-spouses.
Now, let's look at how paying the insurance premium will affect the Brody's income.