This is a tax planning technique which does not appear to work. If you have such an arrangement you should have it reviewed by an independent tax attorney (not the person who set it up). Your pension plan sets up a trust that uses pre-tax pension dollars to buy life insurance on your life. The theory or goal is that the insurance is purchased with pre-tax dollars so its much cheaper to you then insurance you would buy outside the pension plan with post-tax dollars. To avoid the life insurance proceeds from being included in your estate the sub-trust under the pension owns the insurance, not the pension. Your rights over the sub-trust are structured to avoid inclusion in your taxable estate. The IRS has indicated that this technique will undermine the qualification of the entire pension plan.
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