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Your gross taxable estate will include the proceeds of any insurance on your life, if you own the policy. While the unlimited marital deduction can remove those proceeds from your taxable estate, those proceeds will be included in your spouse's estate subject to tax unless spent or disposed of during the spouse's lifetime.
As a technique to avoid estate tax on the death of either spouse, we often recommend that individuals consider establishing during their lifetime an irrevocable life insurance trusts to own the policies. Often an irrevocable trust purchases "second to die" life insurance, i.e. a life insurance policy that pays at the death of the survivor. Such proceeds are tax free, and are frequently used to pay estate taxes where applicable.
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