Sunday, April 22, 2012
I had a wonderful meeting with Daniel Israel who works for New York Life. This meeting started me thinking how little people know about how life insurance can help you plan your estate and insure your beneficiaries get more money. Normally life insurance proceeds are included in your estate for tax purposes. However, one way to avoid the taxing of life insurance proceeds at death is to establish an Irrevocable Life Insurance Trust or an ILIT for short. This makes ILITs a powerful and often underutilized estate planning tool. A properly drafted ILIT can remove the life insurance proceeds from the insured-grantor’s estate and the surviving spouse’s estate, while allowing the proceeds to be available to meet the needs of the surviving spouse and children. Beyond the ability of being able to remove life insurance proceeds from a grantor's estate is that it provides liquidity to the grantor's estate. This means that beneficiaries will be able to pay estate taxes and other obligations without aggravating the estate tax liability. The insurance proceeds can be available to support a surviving spouse and minor children. The proceeds can also be used to purchase assets from the insured-grantor’s estate to provide the estate with liquidity without forcing it to sell assets to outside parties. This is especially helpful in cases involving appreciating assets such as real estate. ILITs have other benefits that this blog does not address. If you have any question about ILITs or any other estate planning documents please contact me.