A family often needs available cash assets when the breadwinner passes away but life insurance can create a problem.
While life insurance can often be the answer for a family in need of cash assets because it pays out immediately, that solution may not be the right answer, according to Forbes in "3 Considerations for an Irrevocable Life Insurance Trust."
One of the problems with life insurance policies is that the benefits can be counted for estate tax purposes. This is especially problematic if the benefits would put your estate over the exemption limit when it would not be otherwise.
One way to get the advantages of life insurance while avoiding the estate tax problem is to create an irrevocable life insurance trust. The trust becomes the owner and the beneficiary of the life insurance policy and keeps the benefits out of the estate tax calculations. However, if you transfer ownership of an existing life insurance policy, then you must live for three years to avoid having the IRS include the death benefit value in your estate anyway.
An estate planning attorney can advise you on the options that will best fit your needs.
Reference: Forbes (Sept. 19, 2016) in "3 Considerations for an Irrevocable Life Insurance Trust."