Although life insurance proceeds are generally not subject to income taxation, death proceeds might be subject to estate taxes when the insured had “incidence of ownership.” 

In addition to avoiding estate taxation of death proceeds, life insurance trusts offer a number of other advantages over outright ownership.

     The Irrevocable Life Insurance trust can insulate the proceeds from claim of creditors or from spouse in the case of divorce.  The Irrevocable Life Insurance Trust (commonly referred to as “ILIT”) can be written to last for children’s lifetime and pass to grandchildren in a “generation skipping transfer” whereby the children during their lifetime can enjoy distributions from the trust but the assets at their death pass to grandchildren.