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Insurance Trusts Still Make Sense

Insurance Trusts Still Make Sense

Money Matters Radio – Estate Planning Q&A with Gary Goldberg

By by Martin M. Shenkman, CPA, MBA, JD

Why You May Need A Life Insurance Trust Money Matters Radio – Estate Planning Q&A with Gary Goldberg By: Martin M. Shenkman, Esq. Introduction/OverviewToo many people assume that with a $5 million federal estate tax exemption they really don’t need to incur the cost and hassle of more sophisticated planning, like using trusts. Big Mistake! Insurance trusts (some times called by the acronym “ILIT” – Irrevocable Life Insurance Trust).
question
What was the tax benefit of using an insurance trust?
answer
Insurance properly owned by a trust is not included in your taxable estate. That can save a fortunate of estate taxes for those subject to tax. In the old days, no so long ago, when the exemption was only $600,000 that was a lot of people. Even if you were a young married person a term policy could have alone triggered tax.
question
So why would anyone care now?
answer
Taxes haven’t disappeared. There could be a $1 million federal exemption in 2013. No one knows for sure. So, just like mom always said “better safe than sorry.” Also, don’t forget state tax. In New York, if your estate is over $1 million, there will be a state estate tax. Even though the rate is not nearly as high as the federal estate tax use to be, if you can avoid it with a relatively simple trust, why not.
question
Other than taxes, are there any other reasons to consider using an insurance trust?
answer
You bet!
  • If you are a young family, and have $1 million term policy to protect your spouse and children, that is a lot of money. What if your surviving spouse remarries? How can you assure that money from your life insurance will really benefit your children? A trust is the only assured answer.
  • Mismanagement is an issue. Insurance is usually a large dollar figure. If you name a co-trustee with your spouse or children who has investment expertise, or at least the sense to hire an investment pro, that alone may save the day.
  • Lawsuits and claims are always a risk. If the trust is properly structured the proceeds may remain protected from many types of claims.
  • If your heirs divorce the money still in the trust can remain safe.

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