Life Insurance Trusts

If you have purchased, or are considering the purchase of a new life insurance policy, based upon the asset size and structure of your estate, the death proceeds of your policy could trigger a significant federal estate tax liability, eroding the proceeds by up to 55% in 2011 and future years, under current law.

Fortunately, with a properly drafted Life Insurance Trust, you can protect the entire death proceeds of your policy from getting hit by Uncle Sam.

If your spouse is a beneficiary of the policy, then your surviving spouse will generally not incur federal estate taxes on the proceeds payable at the death of the insured spouse, due to the unlimited marital deduction. However, upon the death of your surviving spouse, unless the entire death proceeds are either spent or given away by the surviving spouse, the proceeds of the life insurance policy will be part of the taxable estate of the surviving spouse for federal estate tax purposes.

For new life insurance purchases, the solution is to make sure that a Life Insurance Trust is created by an experienced estate planning attorney with the proper language included in the trust agreement in order to ensure that the death proceeds of the policy will not be included in the taxable estate of the insured, nor included in the taxable estate of the beneficiary of your policy.

If you have an existing life insurance policy and do not anticipate that you will need to access the policy cash values, serious consideration should be given to establishing a Life Insurance Trust and making a gift of the policy to your new trust. While federal law requires that the insured policy owner survive three (3) years subsequent to the transfer of an existing life insurance policy to a Life Insurance Trust, so long as the trust is drafted properly and the insured survives this required period of time, the entire death proceeds of the policy will be insulated from federal estate taxes upon the death of the insured spouse. In addition, with a properly drafted and funded Life Insurance Trust, the death proceeds of a life insurance policy can distribute free of federal estate taxes to your children, upon the death of both spouses.

Many of our clients who have established Life Insurance Trusts have said that if they were aware how easy it was to have their new policy owned by their trust upon issuance of the policy, as well as completed the transfer of their existing life insurance policy to a trust, they would have done so many years ago.

Do you have a Life Insurance Trust? If not, please contact our office to arrange a Complimentary Consultation to discuss the benefits to your family of establishing a Life Insurance Trust, for protecting your designated beneficiaries and shielding the entire death proceeds of your policy from federal estate tax consequences.