An insurance trust is a specific kind of irrevocable trust that allows you to buy life insurance through the trust. You set up the trust, you set up a separate checking account for the trust, you give money to that checking account, you have to give your beneficiaries an opportunity to take that cash out. There are rules about making a present gift. They are called the “Crummey rules”. Then you buy insurance with it, and someday when you are not here and your insurance pays, that insurance is outside of your estate. The money that you use to make the payment on your insurance are considered a gift to the beneficiaries of your trust that year. In today’s rules, you are allowed to give up to $13000 in cash to each beneficiary each calendar year. Generally you have removed that money from your estate. You have removed the insurance proceeds from your estate.
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