An irrevocable life insurance trust allows you to make an immediate gift for tax purposes, but postpone receipt until after your death. This type of trust also leverages the increase because appreciation and income on the policies and other property in the trust avoid estate tax. The payout on the policy occurs when cash may be desperately needed to pay estate taxes, or to fund a buy-sell agreement in a close corporation or partnership. The following paragraphs explain this in more detail. The federal government imposes estate taxes in addition to probate expenses and income tax.
States also impose inheritance tax.
The Taxpayer Relief Act of 1997 increased the size of the estate that can be passed to heirs without estate tax. Except for the last few years, the increases barely exceed inflation. In 2004 to 2006, the government may even decide that it cannot afford the larger increases. Three factors limit the usefulness of the QFOB election. First, the QFOB maximum exclusion is fixed.