Life insurance is a part of any good estate planning. An irrevocable life insurance trust, or ILIT, allows the owner and beneficiary to retain control of certain assets during a lifetime. However, estate taxation may occur after death. An ILIT plan may help someone with a large income reduce their estate taxes.
Paying estate taxes
State and federal governments have the right to tax the fair market value of your estate upon your death. As a result, the value of the estate that you transfer to your beneficiaries could be greatly reduced. To avoid this taxation, research and select the right method of estate planning carefully.
The type of ILIT ownership affects the level of taxation. An estate tax is applied to a policy that is owned by the insured. Adding another beneficiary’s name to the policy, such as a spouse or child, helps to avoid having the estate taxed.
Proper estate planning is essential to deciding where your money and properties go. Reducing estate taxes is possible for families that have high incomes due to tax exclusions. The federal estate tax exemption guarantees that no estate taxes are due on property that is transferred to a surviving spouse after your death or the spouse’s death.
Consider your end-of-life options
Most people do not want to spend more fees than necessary on a financial agreement. In regards to one’s estate, obtaining an irrevocable life insurance trust may help reduce the taxes on assets or avoid them altogether. An ILIT is irrevocable and cannot be altered easily, so it’s important to select the right trustee and create a plan carefully the first time.