Another benefit is that life insurance proceeds are usually available immediately upon death, so the assets in our estates may not have to be liquidated to pay estate taxes. Return to top. The policy can be funded through annual gifts. If the money to buy the life insurance policy was to be transferred directly to the trustee, it could be subject to a gift tax. The process is simple.
Money is given to the trustee on behalf of the beneficiaries.
The trustee then notifies the beneficiaries that gifts have been received for them and, unless they elect to take the money immediately, the trustee will invest the funds by paying the premium on the insurance policy. Return to top. Existing policies can be transferred to an insurance trust. The only restriction on transferring existing policies to an insurance trust is that if the person who creates the trust dies within three years of the date of the transfer, the IRS will consider it invalid and the insurance will be included in the taxable estate. A gift tax may also be incurred.