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Irrevocable Insurance Trust
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Definition
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A trust created by a property owner (grantor) during lifetime. It cannot be
revoked.
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When Does It Apply?
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This trust frequently is used to hold life insurance policies or other assets
so that death taxation is avoided when the property owner and/or spouse dies.
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How Does It Operate?
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Life insurance and other assets are transferred into the trust during lifetime.
Insurance proceeds can be made available to estate personal representative to
pay expenses at death.
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Advantages/Disadvantages
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Advantages - trust can supply cash to the estate without having
insurance proceeds reduced by death taxes.
Disadvantages - expense and effort in setting up and managing trust.
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Estate/Gift Tax Implications
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Death taxes are avoided except for life insurance policy proceeds where the
policy was gifted within 3 years of death.
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Income Tax Implications
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Trustee must file fiduciary income tax return if income is produced by trust
assets.
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Other Considerations
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Trustee must have discretion to decide whether to make insurance proceeds
available to the estate. Grantor or spouse should not be the trustee.
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