I had an interesting discussion with a client the other day about using life insurance for different planning techniques that you would normally perform with a different planning vehicle. For example, many of my clients retain my Firm to create private foundations or public charities so that they can govern the use of those contributed funds and obtain an income tax deduction. Many people use private foundations to accomplish this but then later shut them down when they realize how many rules there are from the IRS and how they are limited in running the organization. This specific client decided that the deduction was not the main goal, but to create a vehicle that could be used for many years by family members to facilitate gifting to other charities.
Based on this idea, we started discussing how an Irrevocable Life Insurance Trust would fulfill these goals, and at the end of the discussion the client said that of the two options where he or his family would retain full control over the assets within the trust, he was leaning towards using an ILIT instead of a private foundation. If the drafting attorney spends some time developing appropriate trustee provisions and ways for other family members to get involved (as co-trustees or on an advisory committee), you can do much of the same things with the proceeds of the life insurance trust (just without the income tax deduction).
If a client decides to be extremely creative, in many situations I will recommend that they consider using a properly drafted ILIT to further those goals or to be the main vehicle to fulfill them. Think about using Life Insurance to create a foundation type organization that is not subject to the rules of private foundations (but not free from tax), planning for death taxes in the traditional ways, using cash value in an ILIT to purchase assets from an estate (best for rapidly appreciating assets), Using insurance to fund a Health and/or educational trust in a jurisdiction like Delaware with a long rule against perpetuities so that the funds will always be available for the purposes in which you set them up for.
The client left my office with a new understanding that insurance is not just for the protection of your family anymore, but it is also a very cost effective way of leaving a legacy for yourself or your family in one or more different ways.