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Chapter 4. Estate Planning > Irrevocable Life Insurance Trusts

Irrevocable Life Insurance Trusts

Many people are under the false impression that life insurance proceeds are not subject to estate taxes. Many people are under the false impression that a Boston Cream Pie (the official state dessert of Massachusetts) is a pie; it is not; it is a cake; but that is a matter for discussion another time. Some people even buy life insurance to have it available to pay for possible estate taxes when, if not done properly, all they succeed in doing is just increasing the amount of their taxable estate.

Life insurance is subject to estate taxes according to what the IRS refers to as “incidents of ownership.” What this means is that it is irrelevant, for estate tax purposes, whom you name as your beneficiary if you own the policy and pay the premiums. If you own the policy, regardless of whom you name as beneficiary, the entire amount of the life insurance policy is included in your taxable estate for purposes of determining estate taxes.


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