Tuesday, May 27, 2014
Life insurance policies can offer many advantages; one of the biggest being the tax benefits it can offer your beneficiaries. The death benefits of a life insurance policy are not subject to income taxes. With current federal income tax rates, this is an advantage that can lead to substantial tax savings.
Most estates will be exempt from federal estate taxes since there is a $5.34 million exemption. Although this amount is large, it is possible that the exemption limit may decrease in the future and more families may be subject to federal estate taxes in the future.
The best solution is to implement an irrevocable life insurance trust (ILIT), which is specifically designed to hold and own life insurance policies. Rather than naming yourself the owner of your life insurance policy, you would name the trust as the owner of the policy. An ILIT will allow you to maximize the wealth you will pass on to your descendants, and upon the passing of the insured, the trustee of the ILIT receives the death benefits. This can be an affordable way to deal with expenses that occur with the execution of your estate.
See Jim Sandager, Benefits of an Irrevocable Life Insurance Trust, The Des Moines Register, May 24, 2014.