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Life Insurance Trusts
Many people out there do not realise that the value of their life insurance upon their death becomes a taxable event. Let’s say that you have cash, investments and property worth $2 million and you also have a life insurance policy that wills your children $1 million upon your death. That $1 million will be included when the IRS is calculating the amount of your estate taxes.
If you had an ‘A-B’ Living Trust, your insusceptibility would be over $2 million but that would still leave you with a $1 million life insurance policy payout that is taxable.
There is a way to combat all of this pain and it’s called a life insurance trust. Your insurance policy becomes an asset of your trust and the premium to be paid upon your death would be designated as ‘gifts’. Since you are able by law to give gifts up to $10,000 per year non-taxable to whomever you wish, the premiums would be divided up into lots of $10,000 gifts each year for each of your children and/or spouse, who whomever you designate, thus taking it completely out of your estate tax. A trustee is assigned to this trust just like in a revocable living trust.
Upon your death the proceeds of your life insurance would then go tax free to your children and you could also provide for your spouse and other family members also.
Asset and wealth protection is not only for the wealthy. These powerful, yet simple methodologies should be considered by anyone with a family, property or business.
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