Life Insurance trust
- Thread starter jeffery_scott76
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- life insurance
- 9,744
I guess the most common would be to have an adult child own the policy, and gift the premium to them to pay?
Of course, now the proceeds are in THEIR taxable estate...
- 7,790
A Funeral Insurance Trust is an irrevocable trust, but it is specifically for use in paying burial expenses and attendent expenses related to a funeral. In some states, the amount that can be placed in such a trust is limited by law. Usually the maximum amount of such a trust would be $12,500 and it is funded by a single pay whole life policy. This protects the money from being included in an estate for purposes of Medicaid eligibility. An irrevocable life insurance trust, on the other hand, does not have a limit. Its purpose is to keep the value of the life insurance from being included in the estate for Federal Estate Tax purposes, as Paul pointed out. Hakim, I believe you have confused the two trusts. In any case, the death benefit proceeds are deemed tax-free to the beneficiaries.
- 944
- 924
The proceeds of life insurance are includable in the owner's estate at death. So, a $500k policy with $0 in cash value is going to still add $500k to the deceased owner's taxable estate for federal estate tax purposes.
A simple solution is to have a spouse be the owner (usually, not always). Or, as was said, one or more children can be owners.
However, an ILIT is an ideal way to pass money to children estate tax free. This is used most often to provide liquid assets outside an estate when the estate is taxable. Instead of having to liquidate hard assets, the insurance provides a way for heirs to pay the taxes.
A second-to-die policy is used most often with ILITs since there is no federal estate tax for a spouse. These are usually set up as Crummy trusts so that the trust can have the benefit of gift tax exclusions. The parent or parents gift the premium amount to the trustee who in turn pays the insurance premiums. The current gift tax exclusion, by the way, is $12,000.
I have seen producers get into the realm of practicing law without a license when trying to give advice on how to structure ILITs. Obviously, a good estate/tax/probate lawyer needs to be brought in on any case large enough to justify a trust.
A simple solution is to have a spouse be the owner (usually, not always). Or, as was said, one or more children can be owners.
However, an ILIT is an ideal way to pass money to children estate tax free. This is used most often to provide liquid assets outside an estate when the estate is taxable. Instead of having to liquidate hard assets, the insurance provides a way for heirs to pay the taxes.
A second-to-die policy is used most often with ILITs since there is no federal estate tax for a spouse. These are usually set up as Crummy trusts so that the trust can have the benefit of gift tax exclusions. The parent or parents gift the premium amount to the trustee who in turn pays the insurance premiums. The current gift tax exclusion, by the way, is $12,000.
I have seen producers get into the realm of practicing law without a license when trying to give advice on how to structure ILITs. Obviously, a good estate/tax/probate lawyer needs to be brought in on any case large enough to justify a trust.
- 9,744
I don't think this is what you meant. Oh yes, there is federal estate tax for a spouse. However there is an unlimited marital deduction between spouses.
Is that what you meant?
Well yes of course but that wasn't what I was alluding to. Many adult children will choose to spend the $12,000 rather than applying it to the insurance.
- 9,744
Hmmm...think that might inflence their inheritance?
Yep, but stupid is as stupid does. I once had a 30-something young mother tell me that she was going to be financially set during retirement because of inheriting her 50-something mother's money. So, what's that.....about 40 years from now? Gee. She'd be better off selling her kids in another country. At least that's one way of getting rid of some current debt and future obligations, don'tchathink?
- 924
Yes. I was trying to make it short and sweet which is nearly impossible when explaining a complicated subject in a few paragraphs.
