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Fratello & Fox, P.C. |
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516.496.0730 |
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ATTORNEYS AT LAW |
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Life Insurance Trusts |
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A large number of individuals own life insurance, but don’t understand the tax consequences of life insurance death benefits. The full amount of the benefit may be included in the insured’s estate for estate tax purposes. Depending on the insured’s date of death, the amount of the benefit and the size of the estate, the insured’s estate can be significantly taxed by the addition of life insurance benefits. In order to avoid including life insurance death benefits in the estate of the insured, it is recommended that the owner of the policy is a third party and not the insured. One way of achieving this is by making the owner of the policy a life insurance trust. A life insurance trust must be irrevocable to escape taxation. This means that the trust cannot be amended or revoked. In addition to being irrevocable, the trust must appoint a trustee that is other than the insured or the insured’s spouse. A life insurance trust has other benefits as well. The trust can hold other assets and is an excellent vehicle to control the use of a death benefit. It is important to note that if you would like to transfer the ownership of an existing life insurance policy to a trust, a three-year inclusionary rule will apply. Under the rule, the benefit will be included in the insured’s estate for tax purposes if the insured dies within three years of the transfer. Your life is unique and so is your estate plan. It is important to speak to your accountant, financial planner or estate planning attorney to obtain further information before implementing any estate planning tool.
Dated: 3/1/2006 |
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The information in this website is intended for information only and does not represent legal advice. Receipt of materials from this website does not constitute an attorney-client relationship between Fratello & Fox, P.C. and the receiver. Professional counsel should be sought before utilizing any information contained in this website. |