An irrevocable trust may be considered when the estate owner's primary objective is to obtain federal estate tax savings. When property is placed in an irrevocable trust, the grantor is giving the property away permanently. Subject to the three-year lookback discussed below, since the grantor no longer owns the property, it will not become part of the gross estate and will not be subject to federal estate tax.
Life insurance intended to pay federal estate tax may be the only asset an irrevocable trust will hold. If life insurance is purchased to pay federal estate tax, the objective usually is to keep the insurance proceeds out of the grantor's estate and not subject it to tax.
Ideally, the trust should be established before the life insurance is purchased. The trust is named the owner and beneficiary of the life insurance contract. The trust will purchase the policy, rather than the estate owner or insured gifting the policy to the trust after purchase. This is important since insurance that is gifted within three years of an estate owner's death, including to an irrevocable trust, will be brought back into the estate and be subject to federal estate tax.
State Farm Life Insurance Company (Not licensed in MA, NY or WI)
State Farm Life and Accident Assurance Company
(Licensed in New York and Wisconsin)
Home Office, Bloomington, Illinois
Neither State Farm™ nor its agents provide tax or legal advice.
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