182 / Are life insurance proceeds includable in an insured's estate if they are payable to an irrevocable trust and the trustee has the power to use them for payment of the insured's estate debts and death taxes?

Yes.

Life insurance proceeds are includable in the insured’s estate if the trustee is required to use the proceeds to discharge estate obligations. The amount of proceeds required for payment of such debts and taxes is includable in the insured’s gross estate, whether the proceeds actually are used for such purposes or not.¹ If the trustee’s power is merely discretionary, however, and the trust is for the benefit of named individuals, the proceeds are includable in the insured’s estate to the extent they are actually used for such purposes.² (See also Q 83.)

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Planning Point: Liquidity for an insured’s estate can be aided by authorizing the trustee to lend proceeds to the estate or to use them to buy assets from the estate; such powers, if only discretionary, should not subject the proceeds to inclusion in the insured’s estate.

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