Consequently, if your personal life insurance policies will substantially increase the value of your assets, you may want to consider transferring the ownership of those policies to reduce your total taxable estate. In order to exclude the proceeds from your taxable estate, you must relinquish all incidents of ownership and continue to live for at least three years after any transfer.

A properly structured irrevocable life insurance trust (ILIT) is one mechanism that can help ensure all incidents of ownership are eliminated. Although this approach necessitates relinquishing ownership and control of the policy, the resulting gain may be worth these tradeoffs.