Part 4: Five standard forms of trusts

As previously discussed, there are five standard forms of trusts. Each type has advantages and disadvantages, which you should discuss with your estate-planning attorney. The fourth type is as follows:

Irrevocable life insurance trust: An irrevocable life insurance trust (ILIT) can remove your life insurance from your taxable estate, help pay estate costs, and provide your heirs with cash for a variety of purposes. To remove the policy from your estate, you surrender ownership rights, which means you may no longer borrow against it or change beneficiaries. In return, the proceeds from the policy may be used to pay any estate costs after you die and provide your beneficiaries with tax-free income.

That can be useful in cases where you leave heirs an illiquid asset such as a business. The business might take a while to sell, and in the meantime your heirs will have to pay operating expenses.

Original Source: CNN Money, Money Essentials

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