New York Life Insurance Trust Lawyer
Long Island Life Insurance Trust Attorney
Life Insurance Trusts
A life insurance trust is an irrevocable trust which is created by an individual for the purpose of providing financial benefit to the individual’s family members upon his or her death. The life insurance trust is both irrevocable and non-amendable. The trust is both the owner and the beneficiary of the life insurance policy. An irrevocable life insurance trust has tax benefits.
Tax Efficient Estate Planning
The irrevocable life insurance trust is considered to be one of the most tax efficient estate planning devices available today. There is a misconception that life insurance proceeds are totally tax free. While it is true the proceeds of life insurance policies are paid out to the beneficiaries income tax free, these proceeds are still subject to Federal Estate Taxation and New York State Estate Taxation. In the event a life insurance policy is owned by the person who purchases the policy, the face amount of the policy is included in his or her estate for estate tax purposes.
Avoiding Estate Tax on Life Insurance Proceeds
The easiest way to avoid estate taxation on life insurance policies is to have a different individual own the policy than the person on whose life the policy was purchased. The best way to avoid estate taxation on a life insurance policy is to have the life insurance policy in an irrevocable life insurance trust. In these trust situations, the policy is owned by the trust not by the person on whose life it is on. This avoids the trust being subject to either federal or state estate taxation as well as income taxes.
The Trust Must Be the Beneficiary of the Policy
In addition to the trust being the owner of the policy, it must also be the beneficiary of the policy. After the death of the person whose life the policy is on, the trustee can use the insurance proceeds to support the spouse or heirs of the decedent.
Life Insurance Trust (ILIT)
The irrevocable life insurance trust is also referred to as a life insurance trust and/or an ILIT. This is an extremely valuable estate planning device for those individuals who have assets above the estate tax limit, which is currently $5,340,000. It can be used as part of a sophisticated estate plan involving wills, trusts, powers of attorney and healthcare proxies.
Second to Die Life Insurance Trust
There is a second type of life insurance trust which holds the proceeds of life insurance related to the lives of both the husband and a wife, or a parent and a child. This is a called a second to die life insurance trust.