Most people have the expectation of passing on their wealth to their children or spouse. With the demise of the baby boom generation approaching there will be an enormous transfer of wealth, the government plans to capture some of that wealth with the estate tax. The estate tax is imposed upon death.

As of now if your assets net worth is less than $1.5 million dollars your exempt from the Federal estate tax. For married couples, their exempt up to $3 million dollars. Unfortunately, any amount over the exemption will be taxed under the Federal Estate Tax, which is usually around 45%. This tax must be paid within nine months of the day of your death.

Since few estates hold enough cash to pay for the estate tax, you will be forced to start selling off assets to raise enough money to pay the estate tax on time. The time restraints can sometimes cause people to rush into unfavorable transactions.

Fortunately though, you can use an Irrevocable Life Insurance Trust ( ILIT ) to reduce or eliminate your estate tax cost. ILIT's can be used to generate enormous amounts of cash for your heirs, which you can use to pay the estate tax. When you purchase an ILIT the proceeds are not included in the estate of the insured. The proceeds are strictly for the decedent's beneficiary, which completely avoids the estate tax. You get 100% of the money estate tax free.

Any ordinary life insurance policy is not the same as an Irrevocable Life Insurance Trust. An ILIT is estate tax free; a life insurance policy is taxed. This is because a life insurance policy is under the insured's estate.