Tuesday, January 12, 2010

Life Insurance Trusts

Have you considered an Irrevocable Life Insurance Trust (ILIT)?

There is a common misconception that life insurance proceeds are not subject to estate tax.  While the proceeds are received by your loved ones free of any income taxes, they are countable as part of your taxable estate and therefore your loved ones can lose over forty percent of its value to federal estate taxes. As you probably know, there is no federal estate tax in 2010 as of now. However, don't count on that being the norm -- In this economy, you can be sure the federal estate tax will be back in 2011 to raise revenue for the federal government. 

An Irrevocable Life Insurance Trust keeps the death benefits of your life insurance policy outside your estate so that they are not subject to estate taxes.  There are many options available when setting up an ILIT.  For example, ILIT's can be structured to provide income to a surviving spouse with the remainder going to your children from a previous marriage.  You can also provide for distribution of a limited amount of the insurance proceeds over a period of time to a financially irresponsible child. In general, life insurance is a valuable estate planning tool for many families, as it provides a source of liquid cash to handle estate administration upon the passing of your loved one.

If you are interested in discussing ILIT's as part of your estate plan, please contact us.