Irrevocable Life Insurance Trusts
We have unveiled a new and improved Irrevocable Personal Asset Life Insurance Trust™ (iPAL IT™), which incorporates the asset protection features of the Personal Asset Trust™, for not only your children, but also for your spouse. This estate planning tool, when coupled with the right kind of life insurance can enlarge your estate or pay estate taxes for, literally, pennies on the dollar!
Many people are aware that Life Insurance death benefits are usually paid to beneficiaries free of income taxes. But often overlooked is the fact that Life Insurance death benefits are normally subject to death taxes. Death taxes can consume as much as 50% of the death benefit.
That’s because your gross taxable estate will include the proceeds of any insurance on your life, if you own the policy. While the unlimited marital deduction can remove those proceeds from your taxable estate, those proceeds will be included in your spouse’s estate subject to tax unless spent or disposed of during the spouse’s lifetime.
As a technique to avoid estate tax on the death of either spouse, we often recommend that individuals consider establishing during their lifetime an irrevocable life insurance trusts (or ILIT) to own the policies. In a properly structured ILIT, neither you nor your spouse will be considered the owner. This way the death benefit will pass free of both income and death taxes!
Often an irrevocable trust purchases “second to die” life insurance, i.e. a life insurance policy that pays at the death of the survivor. Such proceeds are tax free, and are frequently used to pay estate taxes where applicable.
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