5 Facts about Life Insurance Trust in Florida
5 Facts about Life Insurance Trust in Florida
Life Insurance is an investment.
Like other investments, the value of life insurance is normally included in the total value of an estate when an individual passes away.
Here are 5 Facts about Life Insurance Trust in Florida
- When the value of an estate exceeds the available estate tax exemption, the excess amount may be subject to a 55% estate tax!
- Therefore, if an individual has a large life insurance policy, he or she may unwittingly cause a significant tax liability to his or her estate.
- In order to avoid having one’s estate pay unnecessary estate taxes, an “Irrevocable Life Insurance Trust”, commonly known as an “ILIT” (pronounced “eyelet”), should be considered.
- Few people realize that, even though they may have a modest estate, their families may owe hundreds of thousands of dollars in estate taxes because they own a life insurance policy with a substantial death benefit.
- An Irrevocable Life Insurance Trust is used to make the death benefit escape estate tax.
Avoid Taxes with Life Insurance Trust
Life insurance already escapes income tax.
Avoiding both tax systems can make life insurance a very attractive investment for the future of your family.
Thus, for example, if a $1 million policy is owned in the ILIT, there would be no estate tax due on the proceeds, and the entire $1 million would be available for your heirs.
Use of such a trust can also be employed to bypass the estate of the decedent insured’s surviving spouse or of any other beneficiary for estate tax purposes.
A properly drafted life insurance trust keeps the insurance proceeds from being taxed in your estate as well as in the estate of your surviving spouse.
Where the insured is an owner of an existing policy, the insured must live for three years after the transfer in order to exclude the life insurance proceeds from his or her estate.
There is no such limitation for a new policy purchased by the trustee.
How Is An Irrevocable Life Insurance Trust Different From Just Having An Insurance Policy?
While life insurance death benefits are generally excluded from income tax to the beneficiary, they are included as part of the estate of the deceased if the deceased was the owner of the policy at the time of death.
If your estate is close to or already over the amount excluded from estate tax, your estate could have to pay a considerable sum in additional estate taxes if you have a large life insurance policy.
Is There A Way To Avoid Paying Estate Tax On Life Insurance Proceeds?
Estate inclusion can be avoided if the owner of the life insurance policy is someone other than the deceased. This assignment must have occurred more than three years prior to the date of death, or the IRS will still consider the deceased as the policy owner for estate tax purposes. The decedent must not have any of what the IRS calls “incidents of ownership”. If you can control the policy – if you can cancel it, surrender it, borrow against it, pledge or assign it, or can change the beneficiary – you are considered the owner of the policy.
If the policy is owned by an irrevocable trust set up at least three years prior to your death, the insurance proceeds will pass free of estate tax. As noted above, the trust is irrevocable. This means that any decisions you make about the policy are extremely difficult if not impossible to change later.
Should I Set Up An Irrevocable Life Insurance Trust?
Many different factors affect the suitability of an irrevocable life insurance trust for your particular estate, including the liquidity of your assets and what other revocable and irrevocable trusts you may have set up. Contact us for a consultation to discuss your estate plan and whether you may want to include an irrevocable life insurance trust as part of that plan.
Life Insurance Trust Florida Financial Planning
Life insurance policies are complex contracts, and independent advisors are often more skilled than attorneys, accountants or other financial professionals in reviewing and fully understanding the terms of the policy, including guarantee and lapse provisions.
Finally, these specialists are generally better-versed about the financial conditions of major life insurance companies and may have knowledge that may be relevant in determining which life insurance company to select.
Mintco Financial are independent Advisors with offices in New York and Florida and has experts in estate planning and life insurance who can help you determine if an Irrevocable Life Insurance Trust will benefit you. We can also obtain a life insurance policy if that is the step you are ready for.
Call us in Florida 813- 964- 7100 (Tampa, FL)
New York 716-565-1300
Visit www.MintcoFinancial.com
Email us at info@mintcofinancial.com
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