Transferring a Policy to an ILIT

The irrevocable trust requires three years before the insurance is completely out of the estate. When the insured is the owner of the policy, transfers of life insurance policies within three years of death result in the entire proceeds being included in the estate.

It is often a misconception that designating a spouse as the owner and beneficiary of an insurance policy removes that policy from estate taxes. The policy would in fact be removed from estate taxes if the insured were the first to die. The surviving spouse would receive the proceeds and those proceeds (or the assets purchased with those proceeds) would ultimately be included in the spouse's estate. The only time insurance is illustrated outside the estate is when arrangements are made so that the insurance is not in either spouse's estate.