Although typically life insurance proceeds are not subject to income taxes, they can be subject to estate taxes.

One way to avoid this problem in North Carolina is to use an irrevocable life insurance trust (ILIT).  Life insurance benefits can be significantly reduced if they are put through estate taxes. An irrevocable life insurance trust pulls the life insurance proceeds out of the estate and instead places them in a trust. In order for this to be effective, the trust must take ownership of the life insurance policy away from the estate. A few important pieces that may be included in an ILIT are a statement of the trust’s irrevocability, the powers of the trustee, the powers of the trust related to the life insurance itself, and the beneficiary withdrawal powers.READ MORE


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