Irrevocable Life Insurance Trust: How it affects your taxes

The life insurance trust is considered as a good option to avoid paying estate taxes on the proceedings of a life policy. However, this arrangement is pretty rigid. The policy holder, after shifting the rights to the trust, loses all control over the policy.

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• You can't change the name of the beneficiary after you shift the rights to the trust.
  
  
• You can't take a loan out of the plan at the time of need.
  
  
• If the policy holder dies within three years of setting up the trust, he will be considered as the owner of the plan. And hence, the life policy benefits will become taxable.
  
  
• The life trust once set is an irrevocable life insurance trust.
  
  
• The money forwarded to the trust for making the premium payments for the policy may use up your estate tax exemption.

Still, how many of you feel that its important to set up the life insurance trust for future benefits?

Thanks in advance.