If your estate will still have to pay estate taxes after you transfer your insurance to a trust, you can reduce your estate tax costs — by having the trust buy additional life insurance. Here are three very good reasons to do this:
1. If the trust buys the insurance, it will not be included in your estate. So the proceeds, which are not subject to probate or income taxes, will also be free from estate taxes.
2. Insurance proceeds are available right after you die. So your assets will not have to be liquidated to pay estate taxes.
3. Life insurance can be an inexpensive way to pay estate taxes and other expenses. So you can leave more to your loved ones.