As of January 1, 2016, life insurance testamentary trusts are no longer being taxed at the same marginal rates that apply to individual taxpayers unless they qualify as a qualified disability trust. Instead, they will now be taxed at the top marginal rate, just as inter vivos trusts are currently. Unfortunately, there is no grandfathering for existing life insurance testamentary trusts.
Despite the loss of taxation at marginal rates, life insurance trusts still have many important benefits such as control and flexibility of the distribution of the life insurance proceeds, possible avoidance of will challenges, and probate planning.
There are three ways to create a life insurance testamentary trust. Your client could: