When one passes away with a substantial estate, his assets are subjected to the large estate tax. This can leave heirs with less than the intended amount desired by the decedent. One way to protect assets from estate taxes is an Irrevocable Life Insurance Trust. Lets go back to the basics of estate planning. In order to shield assets from estate taxes, the decedent must have removed any property within his estate three years prior to his death. This tells the government that the decedent did not purposefully remove the assets with the intention of escaping estate taxes. By placing a life insurance policy within an irrevocable trust, three years prior to death, the decedent is removing any ownership rights to the policy and leaving it in the hands of a trustee. After the decedent’s death, the beneficiary will have to pay income tax on the distributions. Creating an irrevocable life insurance trust also gives the decedent a great power over the distribution of assets. The decedent has the power to instruct the trustee on how to distribute the proceeds. Suppose the decedent has a child, whom he loves very much, but has an excessive gambling problem when it comes to horse racing. The father does not want to leave his son an excessive amount of money because he is afraid it will be gambled away within a year. The father instructs the trustee to manage the money and ensure its conservation. Now, lets say after the father’s death, the son becomes very depressed and racks up large credit card bills. The creditors will be unable to take the assets from the trust because they are not owned by the son. I know that I have left a vital aspect of information out of the details; but stayed tuned for tomorrow’s blog where I’ll discuss the very exciting gift tax associated with the trust.