A life insurance policy, while tax free to the beneficiaries, for the policy owner the policy value is included as part of the estate. Considering the size of the estate tax exemption, $5.45 million in 2016, very few have to worry about its inclusion, though state estate taxes are a factor in several states. An irrevocable life insurance trust is a solution to this problem. Other trusts can help solve problems of having the beneficiary receive life insurance benefit at an early age or a large lump sum without restriction.
Dynasty Irrevocable Life Insurance Trusts (DILIT)
Dynasty Trusts: Tying Up the Family Fortune Forever
Irrevocable Life Insurance Trusts (ILIT)
Spousal Lifetime Access Trust (SLAT)
Protection SLATs offer estate planning flexibility
Standby Trust
Standby Trust a Flexible Alternative to an ILIT (ING pdf)
Special Needs Trust
How Life Insurance Can Help Reduce Estate Taxes Investopedia 10/15/2015
note: Spendthrift trust