Estate Planning with an Irrevocable Life Insurance TrustBy James Blake on
An irrevocable trust is a powerful estate planning tool that can leverage federal and Texas gift tax and estate tax planning, particularly for a life insurance trust. Life insurance can be subject to estate tax, but an estate planning attorney can help you structure a life insurance trust as an irrevocable trust, so life insurance proceeds can pass to your loved ones without being part of your estate, and thus, without estate taxes.
Why Use an Irrevocable Life Insurance Trust?
Forming an irrevocable life insurance trust allows you to transfer assets (usually cash) that will appreciate in value by investing in a life insurance policy. Contributions to the life insurance trust may be exempt from gift tax if they are below the federal and Texas gift tax threshold. Because the money transferred to the irrevocable life insurance trust will appreciate in value, and because the life insurance trust can avoid gift taxes and estate taxes, you can pass on a great deal of money to your loved ones and family.
Revocable Trust vs Irrevocable Insurance Trust
To get the estate tax advantages described above, it’s important to work with an estate planning attorney to structure the life insurance trust as an irrevocable insurance trust. A revocable trust will not remove the life insurance policy from your estate, and thus, the life insurance will be subject to estate taxes. The drawback of an irrevocable insurance trust is that the assets you contribute to the irrevocable trust no longer belong to you, and may be withdrawn by the trust beneficiaries during a set number of days out of the year. However, this is not usually a problem because beneficiaries of irrevocable insurance trusts typically do not withdraw these assets, choosing to honor the wishes of the grantor who set up the irrevocable trust.
Estate planning is an important part of wealth preservation and asset protection. An estate planning attorney can work with you to fully utilize your federal and Texas gift tax and estate tax planning to set up an irrevocable life insurance trust. Call our Texas law firm to speak with an estate planning attorney today.
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Tags: Austin Estate Planning Attorney, Austin Estate Planning Lawyer, Estate Taxes, Gift Taxes, Irrevocable Insurance Trust, Irrevocable Life Insurance Trust, Irrevocable Trust, Revocable Trust, Texas Gift Taxes