If you haven’t spoken to your lawyer in Tampa, then you might not know that your life insurance proceeds are open to estate taxes. This is a great reason why it’s time to sit down with your lawyer in Tampa to go over your estate planning needs. Your lawyer in Tampa can help you understand the estate planning process and advise you on how best to protect your assets. One such tool they can help you with is the Irrevocable Life Insurance Trust (ILIT).
The Irrevocable Life Insurance Trust (ILIT) is a great tool to avoid paying estate taxes. The purpose of an ILIT is to setup ownership of the life policy. The irrevocable part means that once it is set up, the terms cannot really be changed. You must also walk away from the trust and appoint someone else as a trustee.
Additionally, an ILIT cannot be paid out to your estate, because you could change the policy and therefore make it taxable again. The main use of an ILIT is to name a policy beneficiary. Once you die, the policy is transferred to the ILIT. The proceeds are not taxed because they are paid out in incremental payments.
The IRS generally approves of ILITs but will challenge them when they don’t meet certain conditions. These conditions should be reviewed by your lawyer in Tampa in order to ensure that you are on the right side of the law.
Life insurance proceeds can be a helpful tool to pay off the estate tax. If these proceeds are in an ILIT, it can benefit your estate because it allows you liquidity without having to fall under the estate tax.
Whatever your estate planning needs are, it is crucial to voice your concerns with your lawyer. If your estate is taxable and you have a big insurance policy, then it is worth learning more about ILITs and how they can ensure your proceeds aren’t taxed.
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