Charitable Remainder Trusts
24. Life Insurance You Own Is Included In Your Taxable Estate
You may not know this, but as this chart illustrates, the life insurance you own is included in your taxable estate, along with your other assets, such as your home, other real estate, and so on.
So if you buy the insurance yourself, you just increase the value of your estate and the amount of estate taxes that must be paid when you die. The estate tax is a very expensive tax. Historically, it has been 45-55%. Remember, currently in 2010 there is no federal estate tax. However, it is scheduled to return in 2011 with a $1 million exemption and a 55% tax rate.
With a life insurance trust, the trust owns the insurance for you. So this insurance will not be included in your taxable estate...which will reduce the size of your estate and the amount of estate taxes that will be owed when you die.
Even if you don't use a charitable remainder trust, you may want to have a life insurance trust to keep your insurance out of your estate.