When Is Life Insurance Subject To Estate Tax? 
In short , when it 's part of the calculation of the estate . The IRS code permits a unified tax credit to pass a certain value of property to a spouse without having to pay a tax . When you exceed that value -LRB- a taxable estate -RRB- , a tax is applied that must be paid within 9 months of death . If the decedent is single , the tax is due accordingly . If the decedent is married , the tax is due after the second death -LRB- death of the spouse -RRB- . A common course of action people take to minimize the estate taxes they will be subject to is creating an irrevocable life insurance trust -LRB- ILIT -RRB- . An ILIT is a legal document set up to distribute life insurance proceeds in a specific manner , depending on how the trust is designed . These trusts receive special tax consideration from the IRS that is not given to life insurance policies that would otherwise be owned by a natural person or revocable trust . Since the trust is irrevocable , the terms of the trust can not be changed . An ILIT can offer many substantial advantages to protect life insurance proceeds and help you distribute your property to your children at the least possible cost . Any life insurance policy you buy will require the same premium whether you put the policy in the trust or keep it outside of the trust . If you put the policy in the trust , the death benefit is not included in the calculation of the size of the estate - a substantial tax savings and key advantage in the estate planning process . If you keep the policy outside of the trust -LRB- e.g. , as owned by a natural person or a revocable trust -RRB- , the proceeds will be included in calculating the size of the estate you may inadvertently increase the size of the estate , and be subject to paying much higher estate taxes before any of the property can be distributed to your children or other beneficiaries . I hope the information is helpful - please feel free to contact me for help and if you have any other questions . Thanks very much . 