Estate planning is similar in other respects to other purchases we make or medical procedures we have done.  Once we buy the item, we have to maintain it.

An irrevocable life insurance trust is created to hold a life insurance policy.  It is utilized by people who have taxable estates.  Today, that means an individual with over $2,000,000 or for a couple with over $4,000,0000; however, next year that increases to $3,500,000 for an individual and $7,000,000 for a couple. 

The way it is supposed to work is that a lawyer prepares the trust.  In the trust, the trustor or trustmaker appoints a trustee who then applies for life insurance on the insured’s life.  In reality, it does not always happen exactly that way, but most of the time it is fairly close.

As with a lot of things, the devil is in the details.  For example, if a married individual is having the trust prepared, the premiums should be paid from separate property funds.  The trust should have its own checking account.  Crummy letters (named after the family in an important court case) need to be sent to each of the beneficiaries every year explaining to the beneficiaries that they have the right to withdraw money from the trust for a certain period of time.

You, the client, need to ask the professionals (attorneys, CPAs, financial planners, and insurance agents) questions when you do estate planning so that the trusts provide the benefit that they are meant to bring.