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Life insurance is a practical and popular planning tool to provide liquidity for any type of estate. The reasons for this relate to the basic mechanics of an insurance policy. Premiums are priced relative to policy proceeds. For a married couple, it is common to use second-to-die coverage for estate liquidity needs. But, if the insured owns the coverage or has incidents of ownership, the proceeds are subject to estate tax. Therefore, it may be wise to consider positioning life insurance should be owned outside of the estate in order to avoid inclusion of the proceeds for tax purposes. Placing life insurance in an irrevocable trust is one such way to accomplish this.
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